India Bond Returns: The Indian government has removed taxes on income and profits earned by foreign investors from government securities, aiming to make the country’s bond market more attractive to global investors.
Through the Income Tax Amendment Ordinance, 2026, issued on Thursday, foreign institutional investors (FIIs) will no longer have to pay tax on interest earned from government securities (G-Secs). The government has also removed capital gains tax on the sale or transfer of these bonds.
The new rules will apply retrospectively from April 1, 2026.
According to the Finance Ministry, the move is part of a broader effort to strengthen India’s position as a global investment destination, simplify investment processes for foreign investors, and attract long-term overseas capital.
Under the revised tax framework, the long-term capital gains (LTCG) tax on government securities has been reduced from 12.5% to zero. In addition, the withholding tax on interest income from these bonds has been cut from 20% to nil.
As a result, foreign investors will now earn tax-free returns from investments in Indian government bonds.
The ordinance also extends similar tax benefits to the Bank for International Settlements (BIS), the international institution that works with central banks around the world.
The government believes these changes will boost India’s appeal among global debt investors, especially as the country’s bond market becomes more integrated with international financial markets.
The decision is expected to support demand for government bonds, deepen India’s sovereign debt market, and attract a larger pool of long-term foreign capital. Analysts say the tax exemptions could make Indian government debt more competitive compared to other emerging-market fixed-income investments.
The Finance Ministry added that these reforms are designed to reduce operational hurdles, simplify market access, and create an investment experience that matches leading global financial markets. The measures are also expected to broaden participation in Indian equities and government securities by international investors seeking opportunities in one of the world’s fastest-growing major economies.
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