India exempts foreign investors from capital gains tax on government securities

The Union Cabinet approved an ordinance amending the Income‑Tax Act to exempt foreign institutional investors (FIIs) and the Bank for International Settlements from tax on interest earnings and capital gains on Indian government securities. The exemption is retroactive to 1 April 2026 and removes the 20 % withholding tax on bond interest.

The measure aims to deepen foreign participation in India’s sovereign debt market, attract long‑term capital, and ease pressure on the rupee, which has weakened amid rising oil prices and large capital outflows from Indian equities. World Bank Executive Director Neelkanth Mishra said the step could “show visibility that there are a lot of dollars coming” and help stabilise the currency market.

Alongside the tax relief, the government broadened the list of bonds eligible under the Fully Accessible Route and lifted limits on short‑term, concentration and security‑wise holdings for foreign investors, seeking to develop a smoother yield curve and support government borrowing at lower rates.