Government to replace tax exemption ordinance with Income-tax (Amendment) Bill for foreign investors
In the upcoming Monsoon Session of Parliament, the government is likely to introduce the Income-tax (Amendment) Bill to replace the ordinance effected to exempt foreign investors from income tax on interest earnings and capital gains from investment in G-secs. The Ordinance was promulgated last month to attract foreign capital to ease pressure on the depreciating rupee owing to the West Asia crisis.
The Income-tax (Amendment) Bill, 2026, will replace the Income Tax (Amendment) Ordinance, 2026, according to the list of new bills to be tabled in the upcoming session beginning July 20. The Bill aims to deepen India's sovereign debt market, attract stable global capital inflows, and enhance liquidity in view of the prevailing global macro-economic environment, marked by significant volatility arising from geopolitical uncertainties, sharp increases in crude oil prices, and disruptions in global supply chains.
The government exempted foreign investors from income tax on interest earnings and capital gains from government securities as it looked to attract foreign capital to counteract pressure on the rupee. The government promulgated an ordinance to amend the Income Tax Act, granting tax exemptions on interest income and capital gains arising from the sale, exchange, or transfer of government securities with effect from April 1, according to a gazette notification dated June 5. Foreign investors are subject to a long-term capital gains tax of 12.5 per cent on listed shares and bonds held for more than 12 months. They also pay a withholding tax of 20 per cent on interest earned on government bonds.
