In a significant step to attract greater foreign participation in its debt markets, the Indian government has introduced the Income-Tax (Amendment) Ordinance, 2026. This new legislation, which takes effect retrospectively from April 1, 2026, grants crucial tax exemptions on government securities (G-Secs) to specific foreign entities.
Key Exemptions Introduced
The ordinance explicitly removes income tax on interest earned and capital gains realized from the sale, exchange, or transfer of government securities. Furthermore, it eliminates the withholding tax obligations associated with these investments, a long-standing point of friction for international investors.
Who Benefits from the New Ordinance?
These exemptions are tailored for two distinct categories of foreign investors:
- Foreign Institutional Investors (FIIs): As defined under the relevant provisions of the Income-Tax Act, 2025.
- Bank for International Settlements (BIS): An international financial institution established in 1930 and headquartered in Basel, Switzerland.
This targeted approach aims to streamline the investment process for these key players, making Indian government bonds a more attractive proposition.
Legislative Mechanism and Compliance
The amendment achieves these exemptions by inserting two new entries, 13D and 13E, into Schedule IV of the Income-Tax Act, 2025. While the government is keen to reduce barriers, it maintains regulatory oversight. Eligible entities wishing to avail themselves of these tax benefits are required to submit specific information in a prescribed form and manner, ensuring transparency and accountability in the process.
Boosting India's Debt Market
The primary objective behind this ordinance is to deepen foreign involvement in India’s sovereign debt market. By removing significant tax hurdles, the government hopes to enhance liquidity, reduce borrowing costs, and strengthen the overall appeal of G-Secs to a wider international investor base.