New Delhi – The Indian government is set to introduce the Income-tax (Amendment) Bill, 2026, during the Monsoon Session of Parliament, beginning July 20. This legislative move aims to formalize and replace an existing ordinance that provides significant tax relief to foreign investors.
The Income Tax (Amendment) Ordinance, 2026, which took effect from April 1 via a June 5 notification, exempted foreign investors from income tax on interest earnings and capital gains derived from investments in government securities. This measure was initially promulgated to attract crucial foreign capital, deepen the sovereign debt market, and alleviate pressure on the Indian rupee amidst global economic volatility and geopolitical uncertainties.
According to government statements, the new bill seeks to achieve the same strategic objectives: attracting stable global capital inflows, enhancing liquidity within India's sovereign debt market, and bolstering economic resilience in a challenging global macro-economic environment marked by rising crude oil prices and supply chain disruptions.
Impact on Foreign Investors
Historically, foreign investors in India have been subject to a 12.5 percent long-term capital gains tax on listed shares and bonds held for over 12 months. Additionally, they face a 20 percent withholding tax on interest earned from government bonds. The ordinance, and subsequently the proposed bill, directly addresses these tax liabilities, making Indian government securities more attractive to international funds.
The ordinance, signed by President Droupadi Murmu, also clarified definitions for international financial institutions like the Bank for International Settlements (BIS) and referenced existing statutory definitions for Foreign Institutional Investors (FIIs) and government securities under Indian law. Its promulgation under Article 123 of the Constitution underscored the government's view of the immediate need for such financial incentives while Parliament was not in session.
Broader Legislative Agenda
Beyond the Income Tax (Amendment) Bill, 2026, the Monsoon Session is also slated to include the introduction of other key legislation, such as Demands for Excess Grants for the financial year 2022-23 and the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026. The MSME bill aims to update the 2006 Act, focusing on enhancing the ease of doing business, strengthening mechanisms for delayed payment resolution, and introducing trust-based regulations within the MSME ecosystem.