The Indian government has eliminated the 12.5% long term capital gains tax on foreign institutional investment in government bonds.
The tax exemption will apply retrospectively from 1 April 2026.
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The announcement drops as the rupee takes a hit, squeezed by a surging dollar, surging oil, and geopolitical chaos in West Asia.
In a statement, the ministry of finance said: “Recognising the importance of a competitive tax regime in attracting global capital, the Government has decided to rationalise the tax treatment applicable to investments by FPIs in Government Securities, by exempting such investments from income tax on any interest or capital gain. This step will align the taxation on G-Secs with many comparable jurisdictions.”
In addition, the government has expanded the fully accessible route framework. It will now include 15-year, 30-year, and 40-year tenor bonds.
Sovereign Green Bonds have also been added to the FAR basket.
This allows non-resident investors to buy these securities without any quantitative restrictions.
Authorities have removed investment caps, concentration limits, and security-wise restrictions for foreign portfolio investors under the general route.
However, the overall ceiling stays unchanged at 6% of outstanding central government securities and 2% of state government securities.
“These measures will help in development of a smooth yield curve, and attract stable systematic inflow of long-term, patient foreign capital, including long-term investors such as pension funds, insurance companies, and sovereign wealth funds. This is also expected to boost foreign exchange inflows for the country,” the ministry added.
