New Delhi, June 5: The central government announced on Friday that foreign institutional investors (FIIs) and the Bank for International Settlements (BIS) will receive exemptions from capital gains tax and income tax on interest earned from investments in government securities. This policy will take effect from April 1, 2026.
This decision comes at a time when the Indian rupee‘s performance in emerging markets has been weak, compounded by global instability and high crude oil prices.
But first, let’s understand what government securities are.
Government securities (G-securities) are debt instruments issued by the central or state governments to raise funds. This includes treasury bills, dated securities, and sovereign green bonds.
Notably, these bonds are issued in Indian rupees, ensuring returns are also in the local currency. Foreign investors can invest through Fully Accessed Route (FAR) and the general investment route permitted by the Reserve Bank of India (RBI).
The government aims to attract long-term investors through this initiative, which is expected to enhance stability in the rupee.
Previously, FIIs and BIS were required to pay a long-term capital gains tax of 12.5% and an income tax on interest of 20% on earnings from selling government securities. With this new decision, they will now enjoy a complete tax exemption on all income.
According to government data, foreign investors had invested ₹3.75 lakh crore in Indian government securities as of May 12, 2026, accounting for approximately 3.34% of the total outstanding. Of this, ₹3.21 lakh crore was invested through FAR, while the remaining ₹54,000 crore was through the general investment route.
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