The PHD Chamber of Commerce and Industry (PHDCCI) welcomes the Income-tax (Amendment) Ordinance, 2026, which exempts interest income and capital gains earned by Foreign Institutional Investors (FIIs) and the Bank for International Settlements (BIS) from investments in Government Securities.
It is a significant step towards strengthening India’s sovereign debt market and enhancing the attractiveness of Indian Government Securities as a global investment asset class. By improving post-tax returns for foreign investors, the measure is expected to encourage greater participation in both the Fully Accessible Route (FAR) and the General Route, thereby broadening the investor base for Government borrowing.
The tax exemption is expected to complement these developments by improving liquidity, deepening secondary market activity, and facilitating greater integration of India’s bond market with global capital markets.
A deeper and more diversified debt market can generate several macroeconomic benefits. Increased foreign participation in Government Securities may lead to sustained capital inflows, helping finance public borrowing requirements at competitive costs while improving market efficiency and price discovery.
The measure may also contribute positively to India’s external sector. Higher foreign investment in rupee-denominated Government Securities would bring additional foreign exchange inflows into the country.
The ordinance marks an important milestone in the evolution of India’s debt markets. By improving the investment environment for global institutional investors, the measure has the potential to enhance market depth, and strengthen capital inflows said Mr. Rajeev Juneja, President, PHDCCI. To the extent that capital inflows exceed current account financing requirements, they may also help moderate excessive volatility in the exchange rate and support overall stability in the foreign exchange market he added. Sustained benefits are likely to arise when the tax incentive is accompanied by continued macroeconomic stability, prudent fiscal management, and further reforms aimed at improving market access and liquidity.
“The tax exemption aligns India’s sovereign debt market more closely with international best practices. Greater participation by long-term global investors can contribute to improved liquidity, and stronger foreign exchange inflows in an increasingly interconnected global economy, Ranjeet Mehta, CEO & Secretary General, PHDCCI.