Centre grants tax exemption to FPIs on capital gains and interest income from government securities

Centre has granted tax exemption to Foreign Institutional Investors on capital gains and interest income arising from investments in government securities. The government has promulgated the Income-tax (Amendment) Ordinance, 2026, in this regard. Union Finance Ministry said this step will align the taxation on Government Securities with many comparable jurisdictions. The exemption will be applicable from 1st April this year.
 
The Ministry added that the exemption will apply to any interest or capital gains arising to Foreign Portfolio Investors on or after 1st April in respect of investments in Government Securities. It said a similar income-tax exemption is also provided for the Bank for International Settlements for any interest or capital gains from its investments in Government Securities. The Ministry said this will ensure a stable, systematic inflow of durable, patient foreign capital and long-term investors such as pension funds, insurance companies, and Sovereign wealth funds.
 
The Ministry said these reforms aim to reduce operational complexities, simplify market access, and provide a more seamless investment experience comparable with leading international financial markets. It is also expected to expand the investor base for Indian equities and Government Securities and encourage wider participation from global investors seeking exposure to one of the world’s fastest-growing major economies.