India Tax Reforms Boost Foreign Investment in G-Secs

The Government of India has implemented a series of strategic reforms aimed at strengthening the domestic debt market and positioning India as a premier destination for global capital. Central to these efforts is the enhancement of Foreign Portfolio Investor participation in Government Securities.

The Tax Overhaul

A new tax regime exempts Foreign Portfolio Investors and Foreign Institutional Investors from taxes on interest income and capital gains arising from G-Secs, effective from April 1, 2026. Key details of the tax changes include:

• Exemption for interest income earned by FPIs and FIIs.
• Exemption for capital gains (both short-term and long-term) arising from G-Secs.
• Retrospective application effective from April 1, 2026.

Expanding Investment Access

The government has also expanded the Fully Accessible Route to include new issuances of 15-year, 30-year, and 40-year G-Secs, as well as Sovereign Green Bonds. These adjustments remove barriers that previously restricted international capital flows.

• Inclusion of 15-year, 30-year, and 40-year G-Secs under the FAR.
• Inclusion of Sovereign Green Bonds in FAR-eligible tenors.
• Removal of short-term investment limits, concentration limits, and security-wise limits under the General Route.

These initiatives are expected to improve market liquidity, facilitate better price discovery, and support the broader integration of India’s financial markets with the global economy.