The Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026, providing income-tax exemption to Foreign Institutional Investors (FIIs) on interest income and capital gains earned from Indian government securities (G-Secs).
The exemption applies to income arising from the interest, sale, exchange or transfer of specified government securities. FIIs will, however, be required to furnish prescribed information in the manner specified by the government to claim the benefit.
The measure gives statutory effect to the tax relief introduced earlier through the Income-tax (Amendment) Ordinance, 2026. The legislation also repeals the Ordinance, while preserving the validity of actions already taken under it.
Before the exemption, interest earned by FIIs on government securities was generally subject to 20% income tax, while applicable capital gains could attract rates of 30% for short-term gains and 12.5% for long-term gains, subject to the relevant provisions.
The tax exemption applies to eligible income arising on or after April 1, 2026. The government has stated that the reform is intended to make India's tax treatment of government securities more competitive with comparable international markets and encourage greater participation by long-term foreign investors.
The measure is expected to support a broader investor base for India's government securities market, particularly among institutional investors such as pension funds, insurance companies and sovereign wealth funds.
The Bill also extends a similar exemption to the Bank for International Settlements (BIS) in respect of interest and capital gains from government securities.
As the legislation is a Money Bill, the Rajya Sabha can only make recommendations, which the Lok Sabha may accept or reject. The provisions are generally deemed to have taken effect from April 1, 2026, unless otherwise specified. CASansaar