Breaking Update: Tax Exemptions on Government Securities for FIIs & BIS
The President of India has promulgated The Income-tax (Amendment) Ordinance, 2026 (No. 2 of 2026) on June 5, 2026, introducing key tax reliefs aimed at boosting foreign investment in Government Securities (G-Secs)
Key Highlights:
Effective Date: Deemed to have come into force from April 1, 2026
New Exemptions Introduced (Schedule IV) :
• Foreign Institutional Investors (FIIs) : Any interest income or capital gains arising from the sale, exchange, or transfer of Government Securities are now exempt from tax
• Bank for International Settlements (BIS) : Similar tax exemption on interest income and capital gains from G-Secs has been granted to the BIS
Compliance Condition : These exemptions are strictly subject to the reporting entities furnishing necessary information in the prescribed forms and manner
*Definitions Aligned* : “Government security” carries the same definition as under Section 2(f) of the Government Securities Act, 2006
This is a significant move to deepen the Indian sovereign bond market by attracting long-term foreign capital and global institutional participation, retrospectively applicable from the start of the current financial year.
The copy of the Notification is provided below