Government Bond Returns Now Tax-Free For Foreign Investors
GS3Economy · S&T · Environment · Security· Growth, inflation & macro indicators· Prelims + Mains·
Why in news
The Indian government issued the Income Tax Amendment Ordinance, 2026, to exempt foreign institutional investors (FIIs) and the BIS from taxes on interest and capital gains from Indian government securities.
Background
The Income Tax Amendment Ordinance, 2026, reduces long-term capital gains tax on G-Secs to zero and eliminates withholding tax on interest income. The ordinance is effective from April 1, 2026, and includes the Bank for International Settlements (BIS) in the exemption.
Facts for Prelims
- Act / BillIncome Tax Amendment Ordinance, 2026: exempts FIIs from taxes on Indian government securities
- FactLong-term capital gains tax on G-Secs reduced to zero under the 2026 ordinance
- FactWithholding tax on interest income from government securities is eliminated for FIIs
- BodyBank for International Settlements (BIS) is included in the tax exemption
- FactThe ordinance becomes effective from April 1, 2026
For Mains
Q. Discuss how fiscal incentives for foreign institutional investors can influence India's capital market depth and its position as a global investment destination.
Dimensions to cover in your answer
- Capital inflow dynamics: Balancing global liquidity attraction with potential volatility in domestic bond yields
- Fiscal policy trade-offs: Revenue loss from withholding taxes versus long-term infrastructure funding via global capital
Keywords: Fiscal Incentives · Capital Inflow · Foreign Institutional Investors · Government Securities · Tax Exemption
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