Business
Foreign Investors Get Tax-Free Returns on Government Securities
The Centre has exempted Foreign Portfolio Investors (FPIs) from paying tax on capital gains and interest income earned from investments in Government Securities. The move aims to attract long-term foreign capital, deepen India’s bond market, and align the country’s tax regime with global standards.
The Government of India has granted a significant tax incentive to foreign investors by exempting Foreign Portfolio Investors (FPIs) from paying income tax on capital gains and interest income arising from investments in Government Securities.
The exemption has been introduced through the Income-tax (Amendment) Ordinance, 2026, and will take effect retrospectively from April 1, 2026.
According to the Ministry of Finance, the measure is intended to align India’s taxation framework for government securities with practices followed in several major international financial markets.
Under the new provisions, any interest income or capital gains earned by FPIs from investments in Government Securities on or after April 1, 2026, will be exempt from income tax.
The ministry also noted that a similar exemption has been extended to the Bank for International Settlements (BIS) for income generated from investments in Government Securities.
Officials believe the reform will encourage greater participation by global institutional investors, including pension funds, insurance companies, sovereign wealth funds, and other long-term investors. These investors are typically viewed as providers of stable and patient capital, which can help strengthen the resilience of financial markets.
The government expects the move to:
- Attract long-term foreign investment into India’s debt market.
- Expand the investor base for Government Securities.
- Improve liquidity and depth in the bond market.
- Reduce operational and tax-related complexities for foreign investors.
- Enhance India’s attractiveness as an investment destination.
The ministry stated that the reform is part of a broader effort to simplify market access and provide an investment environment comparable to leading global financial centres.
Market participants believe the exemption could boost demand for Indian government bonds, particularly at a time when international investors are increasingly seeking exposure to fast-growing economies with relatively stable macroeconomic fundamentals.
The decision is also expected to complement ongoing efforts to integrate Indian debt markets more closely with global capital markets and support the country’s long-term financing needs.