New Delhi, June 6 The Government of India has announced a series of measures aimed at attracting foreign capital, strengthening the sovereign debt market, and supporting the rupee amid global economic uncertainty.
Under an ordinance promulgated on June 5, foreign investors will be exempt from income tax on interest earnings and capital gains arising from investments in specified Government securities. The exemption will take effect retrospectively from April 1, 2026.
Tax Exemption for Foreign Portfolio Investors
According to a gazette notification, the ordinance amends provisions of the Income Tax Act to exempt interest income and capital gains earned by Foreign Portfolio Investors (FPIs) from the sale, transfer, or exchange of eligible Government securities.
The Finance Ministry stated that the exemption will apply to interest income and capital gains arising on or after April 1, 2026.
Prior to this move, foreign investors were subject to a 12.5% long-term capital gains tax on listed shares and bonds held for more than 12 months and a 20% withholding tax on interest income from Government bonds.
The government said the ordinance was issued because Parliament was not in session and immediate action was required under Article 123 of the Constitution.
Government Expands Fully Accessible Route (FAR)
To encourage greater participation by foreign investors in Government securities, the Ministry of Finance has expanded the list of securities eligible under the Fully Accessible Route (FAR).
The expansion includes:
New issuances of 15-year Government securities
New issuances of 30-year Government securities
New issuances of 40-year Government securities
Sovereign Green Bonds issued in FAR-eligible tenors
The move is expected to broaden investment opportunities for overseas investors and improve liquidity in the sovereign bond market.
Restrictions on FPI Investments Removed
The government has also relaxed several restrictions applicable to FPI investments in Government securities under the General Route.
The following limits have been removed:
Short-term investment limits
Concentration limits
Security-wise investment limits
However, the overall investment cap remains unchanged at:
6% of the outstanding stock of Central Government securities
2% of outstanding State Government Securities (SGSs)
In addition, separate investment categories for “general” and “long-term” investors will be merged into a single investment limit framework.
RBI Announces Complementary Measures
The Reserve Bank of India (RBI) separately announced measures designed to support foreign capital inflows and strengthen India’s external financing position.
The central bank expanded the list of Government securities eligible under FAR by including all new issuances of 15-year, 30-year, and 40-year sovereign bonds.
The RBI also removed restrictions on short-term investments, concentration limits, and individual security limits for FPIs investing through the General Route.
Officials indicated that the combined impact of RBI measures and tax incentives is expected to improve foreign participation in India’s sovereign debt market and support government borrowing requirements.
Measures to Support Rupee and Capital Flows
The latest initiatives come as the Indian rupee faces pressure from elevated crude oil prices and foreign portfolio outflows from domestic equity markets.
Authorities expect the measures to:
Encourage stable long-term foreign capital inflows
Improve foreign exchange reserves
Support development of a smoother sovereign yield curve
Strengthen India’s position as an investment destination
Long-term institutional investors, including pension funds, insurance companies, and sovereign wealth funds, are expected to benefit from the policy changes.
Investment Access Expanded for Overseas Individuals
In line with Budget 2026-27 announcements, the government has expanded investment access for individual Persons Resident Outside India (PROIs).
Under the revised framework:
PROIs can invest in equity instruments of listed Indian companies through the Portfolio Investment Scheme.
Individual investment limits have been increased from 5% to 10% in any single company.
The aggregate investment limit for all PROIs has been raised from 10% to 24%.
The government stated that the changes are intended to simplify participation by overseas investors and facilitate greater foreign portfolio investment into Indian capital markets.
RBI Introduces Foreign Exchange Support Measures
To further encourage overseas borrowing and foreign currency inflows, the RBI announced additional facilities valid until September 30, 2026.
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