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Informist, Friday, Jun. 5, 2026

 

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--Govt removes withholding tax of 20% on FII investments in G-Sec
--Govt OKs NRIs to invest in equity via portfolio investment scheme
--Govt exempts capital gains tax for Bank of Intl Settlements invest in gilts 
--Govt exempts capital gains tax for FPIs investment in govt bonds 
--Govt notifies ordinance to amend Income Tax Act, effective Apr 1, 2026
--President ratifies Income Tax Amendment Ordinance

 

NEW DELHI – To attract foreign investment and shore up foreign exchange reserves, the government on Friday exempted foreign institutional investors from paying capital gains tax on investment in government bonds. The government also expemted FIIs from paying any witholding tax on interest of such investments. Any interest on government security and any capital gains arising from the sale, exchange or transfer of such government security shall be exempted, the Income Tax (Amendment) Ordinance, 2026 stated. The exemption will be subject to furnishing of information as prescribed by the government, it said.

 

The Ordinance further stated that Bank for International Settlements will also be exempted from the capital gains tax. Bank for International Settlements is an international financial institution owned by central banks and serves as a forum for monetary and financial cooperation among central banks globally. It also acts as a banker and asset manager for central banks and international organisations.

 

"It shall be deemed to have come into force on the 1st day of April, 2026.," the Ordinance said. The President has promulgated the Income Tax Amendment Ordinance as Parliament is not in session and the existing circumstances render it necessary to take immediate action.

 

The foreign institutional investors were so far liable to pay 12.5?pital gains tax on investments in government bonds held for more than 12 months. Meanwhile, interest income attracts 20% withholding tax. 

 

The Department of Economic Affairs also notified changes to the Foreign Exchange Management Rules to allow individual Persons Resident Outside India "to invest in equity instruments of listed Indian companies through the Portfolio Investment Scheme which was hitherto available only to Non-Resident Indians/Overseas Citizen of India," a government release said.

 

The investment limit will also be increased for an individual Persons Resident Outside India under this scheme to 10% from 5% in any company, with an overall investment limit for all individual Persons Resident Outside India to 24%, from the current 10%, it added.

 

"Simplified onboarding and reduced compliance requirements would further enhance ease of doing business, while attracting a broader base of relatively stable individual foreign investors. This will also support greater and more stable foreign inflows into Indian equity markets," the government release said.

 

The government also expanded the list of specified securities under the Fully Accessible Route to include new issuances of government securities in tenors of 15, 30 and 40 years as well as sovereign green bonds in the tenors of Fully Accessible Route-eligible securities. Short-term investment limit, concentration limit and the security-wise limit for investments by foreign portfolio investors in government securities has also been removed for foreign portfolio investments under general route.

 

The government, however, retained the overall quantitative investment limit of 6% of the outstanding stock of the central government securities and 2% of the state government securities, the release said. "The sub-categories of investment limits--'general' and 'long-term' will also be merged into a single limit for investment in government securities and state government securities, respectively," it said.

 

The finance ministry release said these measures will help develop a smooth yield curve, and attract stable systematic inflow of long-term, patient foreign capital, including long-term investors such as pension funds, insurance companies, and sovereign wealth funds. This is also expected to boost foreign exchange inflows for the country.  End

 

Reported by Sagar Sen

Edited by Deepshikha Bhardwaj

 

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