Exemption for Government Securities - Income-tax (Amendment) Ordinance, 2026

The Income-tax (Amendment) Ordinance, 2026 promulgated on 5th June 2026 introduces targeted exemptions under Schedule IV of the Income-tax Act, 2025, specifically benefitting Foreign Institutional Investors (FIIs) and the Bank for International Settlements (BIS). This amendment, will be retrospectively effective from 1st April 2026, reflecting India's policy intent to attract foreign capital and align with international financial norms. At a time when global headwinds have contributed to pressure on our foreign exchange reserves with plumetting forex reserves by 6% in 3 months, from $ 728 billion to $ 682 billion, this reform sends a clear signal that India is committed to attracting long term, stable foreign capital. The Ordinance inserts new entries 13D and 13E in the exemption table of Schedule IV. These provisions exempt from tax any interest earned on Government securities and any capital gains arising from their sale, exchange, or transfer, when such income accrues to FIIs or BIS. The exemption, however, is conditional upon furnishing prescribed information in the manner notified by the authorities. The impact of this amendment is that it reduces the effective tax burden on foreign investors in Indian government securities, potentially leading to increased foreign participation in India's debt market. It also signals India's commitment to harmonizing its tax regime with international practices, particularly in the context of sovereign and institutional investors. This move is significant for several reasons. First, it enhances India's attractiveness as a destination for sovereign and institutional investors by reducing tax friction on government debt instruments. Second, it strengthens India's integration with global financial institutions like BIS, headquartered in Basel, Switzerland, which plays a pivotal role in international monetary cooperation. Third, by extending exemptions to FIIs, the amendment seeks to deepen liquidity in the government securities market, thereby supporting fiscal financing and monetary policy transmission. The Ordinance also clarifies definitions under Note 4 appended to Schedule IV. It specifies that 'Foreign Institutional Investor' shall carry the meaning assigned under Section 210(6)(a) of the Income-tax Act, 2025, while 'Government security' adopts the definition under Section 2(f) of the Government Securities Act, 2006. This statutory cross referencing ensures consistency and avoids interpretational disputes. Overall, the Income-tax (Amendment) Ordinance, 2026 represents a calibrated step towards liberalizing India's capital markets while safeguarding regulatory oversight. This measure will not only deepen our debt markets but also help bolster forex reserves, ensuring that India's growth trajectory remains well supported by robust external financing. It is a forward looking reform that aligns with our broader vision of financial stability, global integration, and sustainable economic expansion.