India Exempts Foreign Institutional Investors and BIS from Tax on G-Secs Income to Deepen Bond Market and Attract Global Capital: Income-tax (Amendment) Ordinance 2026

On 5 June 2026, the Government promulgated the Income-tax (Amendment) Ordinance, 2026, focusing on the taxation of income derived from government securities (G-secs) by certain international investors and institutions.

The Ordinance is deemed to have come into effect from 1 April 2026.

Key highlights of Income-tax (Amendment) Ordinance, 2026:

1. This Ordinance introduces changes to the Income-tax Act, 2025, to promote foreign investment and enhance participation in India’s government securities market.

Also Read: A New Era in Taxation: Income Tax Act, 2025 Replaces more than 60-Year-Old Law

2. By offering tax exemptions to select institutional investors, the government aims to:

   • Boost liquidity in the bond market

   • Attract global capital inflows

   • Strengthen India’s position in international financial markets

3. The Ordinance amends Schedule IV of the Income-tax Act, 2025 by inserting new provisions (Serial Numbers 13D and 13E) in the exemption table.

4. Under Entry 13D, the following incomes are exempt from tax if earned by a Foreign Institutional Investor:

   • Interest on government securities

   • Capital gains from the sale, exchange, or transfer of such securities

5. The exemption is conditional upon the submission of prescribed information to tax authorities.

6. Under Entry 13E, similar tax exemptions are extended to the Bank for International Settlements (BIS) in respect of:

   • Interest income from government securities

   • Capital gains from transactions involving such securities

7. Like FIIs, BIS must also comply with mandatory reporting requirements to avail the exemption.

8. The Ordinance introduces a new Note 4 to define key terms:

   • Bank for International Settlements (BIS): An international financial institution established in 1930 and headquartered in Basel, Switzerland.

   • Foreign Institutional Investor (FII): As defined under Section 210(6)(a) of the Income-tax Act, 2025.

   • Government Security: As defined under Section 2(f) of the Government Securities Act, 2006.

Also Read: Income Tax (Amendment) Rules, 2026: Key Changes to Rules 114-F, 114-G and 114-H

Read more: RBI Opens Vostro Route for Foreign Investment in Government Securities

[Income-tax (Amendment) Ordinance, 2026, published on 5-6-2026]