The government has promulgated the Income-tax (Amendment) Ordinance, 2026, granting tax exemptions on interest income and capital gains earned from investments in government securities by Foreign Institutional Investors (FIIs) and the Bank for International Settlements (BIS).
The ordinance, issued by President Droupadi Murmu on Friday, amends Schedule IV of the Income-tax Act, 2025, and will be deemed to have come into force retrospectively from April 1, 2026.
Under the amendment, interest earned on government securities, as well as capital gains arising from their sale, exchange or transfer, will be exempt from income tax for FIIs and BIS, subject to furnishing prescribed information to tax authorities.
Currently, foreign Institutional Investors or Foreign Portfolio Investors (FPIs) face a 20% withholding tax on interest income earned from Indian debt securities (government bonds and rupee-denominated bonds).
The move introduces two new entries—13D and 13E—in Schedule IV of the Income-tax Act. While Entry 13D covers Foreign Institutional Investors, Entry 13E extends the same benefit to the BIS, the Switzerland-headquartered international financial institution often described as the central bank for central banks.
The ordinance also inserts a new explanatory note defining BIS and clarifying that the term “government security” will have the same meaning as under the Government Securities Act, 2006.
The government said the ordinance was necessary as Parliament is not currently in session and circumstances required immediate action.
The tax relief is expected to enhance the attractiveness of Indian government bonds for foreign investors at a time when India is seeking deeper integration with global debt markets and greater participation from overseas institutional investors.