Govt issues ordinance to exempt FIIs from capital gains tax on Government Securities
Jun 05, 2026
New Delhi [India], June 5 : The Centre has promulgated the Income-tax (Amendment) Ordinance, 2026, granting tax exemption to Foreign Institutional Investors (FIIs) on capital gains and interest income arising from investments in government securities (G-Sec).
The Ordinance, published in the Gazette of India on Friday, amends the Income-tax Act, 2025. It has been brought into force retrospectively from April 1, 2026.
According to the notification, "Any interest on Government security, and any capital gains arising from the sale, exchange or transfer of such Government security" shall be exempt in the case of "a foreign institutional investor."
The exemption, however, comes with a compliance condition. The Gazette states that "Such exemption shall be subject to furnishing of information in such form and manner, as may be prescribed."
The Ordinance also extends a similar exemption to the Bank for International Settlements (BIS). The included provision exempts "Any interest on Government security, and any capital gains arising from the sale, exchange or transfer of such Government security" earned by the BIS.
Further, the notification inserts a new Note 4 to define the entities covered under the exemption. It clarifies that "Foreign Institutional Investor" shall have the meaning assigned to it in section 210(6)(a) of the Income-tax Act, 2025.
The Ordinance also specifies that "Government security" shall have the same meaning as assigned to it in section 2(f) of the Government Securities Act, 2006.
The move is expected to enhance the attractiveness of India's sovereign debt market for foreign investors by removing tax costs associated with investments in government securities.
Foreign Portfolio Investors (FPIs) have pulled out a net Rs 2,63,784 crore from India, so far in 2026, amid heightened global uncertainty, geopolitical tensions and shifting investment preferences.
The amendment comes through an Ordinance route as Parliament is not in session.
The Income-tax (Amendment) Ordinance, 2026 is deemed to have come into force from April 1, 2026.
