- The Indian government has introduced a retrospective tax exemption for FIIs on government securities income
- The Income-tax (Amendment) Ordinance, 2026 waives taxes on interest and capital gains from these securities
- The exemption applies to FIIs and the Bank for International Settlements starting April 1, 2026
The Indian government has officially introduced a retrospective tax exemption for Foreign Institutional Investors (FIIs) earning income from government securities, a policy shift aimed at boosting foreign participation in the country's sovereign debt market.
The Income-tax (Amendment) Ordinance, 2026, promulgated on June 5, waives taxes on interest income and any capital gains resulting from the sale, exchange, or transfer of these government securities. Crucially, this tax relief is backdated to take effect from April 1, 2026.
Key Details of the Ordinance
Eligible Entities: The exemption applies to FIIs as well as the Bank for International Settlements (BIS), which is widely known as the central bank for central banks.
Legislative Changes: The government implemented this by adding two new entries—13D and 13E—to Schedule IV of the Income-tax Act, 2025.
Compliance: To actually claim the exemption, eligible entities must furnish specific information in a prescribed form and manner.
This move directly improves post-tax returns for foreign entities. It aligns with India's ongoing efforts to deepen its domestic bond markets and capitalise on the growing international visibility of its government debt. By ensuring the exemption covers the entire financial year, the government is sending a strong signal to global investors looking to increase their exposure to Indian fixed-income assets.
ALSO READ: Deepak Shenoy Rejects 'Weird' Call To Stop SIPs Amid Record FII Selling
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
