Government Issues Income-Tax Ordinance to Exempt FII Interest on Government Securities
The Government of India promulgated the Income-Tax (Amendment) Ordinance, 2026, on June 5, exempting interest and capital gains earned on government securities by Foreign Institutional Investors and the Bank for International Settlements from income tax.
The Government of India promulgated the Income-Tax (Amendment) Ordinance, 2026, on June 5, 2026. This ordinance introduces a significant tax relief measure aimed at enhancing the attractiveness of Indian debt markets to sovereign and institutional investors.
Key Provisions
The ordinance exempts interest and capital gains earned on government securities by Foreign Institutional Investors (FIIs) and the Bank for International Settlements (BIS) from income tax. This measure is designed to simplify the investment framework for global institutional capital flowing into India's sovereign bond market.
Strategic Rationale
This move comes as part of a broader set of measures by the government and the Reserve Bank of India (RBI) to attract foreign capital and alleviate pressure on the Indian Rupee amid ongoing global uncertainties. By making government securities more tax-efficient for foreign investors, the ordinance aims to increase participation in India's bond markets, deepen liquidity, and potentially lower borrowing costs for the government. The measure also aligns with India's recent inclusion in global bond indices, which has already attracted significant foreign portfolio flows into the sovereign debt market.
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