New Income Tax ordinance to exempt FIIs, BIS from tax on interest and capital gains from govt securities

The government has promulgated the Income-tax (Amendment) Ordinance, 2026, introducing tax exemptions for Foreign Institutional Investors (FIIs) and the Bank for International Settlements (BIS) on income earned from certain government securities.

According to the Gazette notification issued by the Ministry of Law and Justice on June 5, President Droupadi Murmu promulgated the ordinance under Article 123 of the Constitution as Parliament was not in session. The ordinance amends the Income-tax Act, 2025, and will be deemed to have come into force from April 1, 2026.

The amendment inserts two new provisions, serial numbers 13D and 13E, in Schedule IV of the Income-tax Act, 2025. Under the changes, any interest earned on government securities and capital gains arising from the sale, exchange, or transfer of such securities will be exempt for eligible entities.

The exemption will apply to Foreign Institutional Investors and the Bank for International Settlements, subject to furnishing information in the prescribed form and manner.

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The ordinance defines the Bank for International Settlements as the institution established at the Hague Conference in 1930 and headquartered in Basel, Switzerland. It also clarifies that the definition of government securities will follow the Government Securities Act, 2006.

The move is expected to provide tax clarity for foreign institutional participation in Indian government securities and align the taxation framework for global financial institutions investing in sovereign debt instruments.