Centre has announced rationalisation of the tax treatment on the investments by Foreign Portfolio Investors (FPIs) in Government Securities (G-Secs), by exempting such investments from income tax on any interest or capital gain to align with the taxation on G-Secs with many comparable jurisdictions.
The exemption shall be applicable w.e.f. 01.04.2026, i.e. the exemption shall apply to any interest or capital gains arising to FPIs on or after 01.04.2026 in respect of investments in G-Secs, Ministry of Finance said in a statement.
The Bank for International Settlements (BIS) receives a similar income-tax exemption for any interest or capital gains from its investments in G-Secs. This will ensure stable systematic inflow of durable, patient foreign capital and long-term investors such as pension funds, insurance companies, and Sovereign wealth funds (SWFs), it said.
Further, the government has also decided to remove the three restrictions for investments by the Foreign Portfolio Investors.
With the view to enhance participation by FPIs in G-Sec, Centre has decided to expand the list of specified securities under the Fully Accessible Route (FAR) to also include new issuances in Government securities in tenors of 15, 30 and 40 years as also Sovereign Green Bonds (SGrBs) in the tenors of FAR-eligible securities.
“With respect to FPI investments under General Route, it has been decided to remove the three restrictions, viz. short-term investment limit, concentration limit and the security-wise limit for investments by Foreign Portfolio Investors (FPIs) in Government securities, while retaining the overall quantitative investment limit of 6 per cent of the outstanding stock of the Central Government securities and 2 per cent of the State Government securities (SGSs),” Ministry of Finance said in a statement.
The sub-categories of investment limits, viz., ‘general’ and ‘long-term’ will also be merged into a single limit for investment in Government securities and SGSs, respectively, it said.