India exempts foreign investors from tax on govt bonds

The Indian government has exempted foreign institutional investors from paying tax on interest income and capital gains earned from investments in government securities, a move aimed at attracting stable foreign capital and deepening the country's sovereign debt market. The policy, enacted via an ordinance issued by President Droupadi Murmu on Friday, also extends the same tax relief to the Bank for International Settlements.

The Income-tax Amendment Ordinance, 2026, amends Schedule IV of the Income-tax Act, 2025, and is deemed to have come into force retrospectively from April 1, 2026. Officials stated the ordinance was necessary as Parliament is not currently in session, requiring immediate action. Under the new rules, foreign institutional investors and the Bank for International Settlements will not pay tax on interest from government securities or on capital gains arising from their sale, exchange, or transfer. The exemption is conditional on investors furnishing prescribed information to tax authorities.

The government said the measure is intended to attract long-term foreign investment into India's sovereign debt market. Officials believe stronger foreign participation...