Govt Exempts FIIs and BIS from Tax on Government Securities Income
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- Last Updated on 6 June, 2026
Latest from Taxmann
No 2 of 2026, dated 05-06-2026
The Central Government has promulgated the Income-tax (Amendment) Ordinance, 2026 to amend Schedule IV of the Income-tax Act, 2025 (ITA 2025).
The amendment introduces specific tax exemptions for Foreign Institutional Investors (FIIs) and the Bank for International Settlements (BIS) in respect of income arising from Government Securities.
1. Existing Framework Under Schedule IV
Section 11 read with Schedule IV of the Income-tax Act, 2025 contains an exclusive list of incomes that do not form part of the total income of a:
- Non-resident; or
- Foreign company
The Ordinance expands this list by inserting two new exempt income categories.
2. New Entry 13D – Exemption for Foreign Institutional Investors (FIIs)
The Ordinance inserts Entry No. 13D in Schedule IV with effect from 01-04-2026.
Under this provision, the following income earned by Foreign Institutional Investors (FIIs) shall not form part of total income:
- Interest income from Government Securities (G-Secs); and
- Capital gains arising from the sale, exchange or transfer of such Government Securities.
The amendment provides a specific tax exemption for FII investments in Government Securities.
3. New Entry 13E – Similar Exemption for BIS
The Ordinance also inserts Entry No. 13E in Schedule IV.
This provision extends a similar exemption to the Bank for International Settlements (BIS) in respect of:
- Interest earned on Government Securities; and
- Capital gains arising from the sale, exchange or transfer of such securities.
Accordingly, qualifying income of BIS from Government Securities shall not be included in its total income under the ITA 2025.
4. Definition of “Government Security” Introduced
The Ordinance further inserts Note 4(c) to Schedule IV to define the term “Government Security” for the purposes of these exemptions.
The Note provides that:
“Government Security” shall have the same meaning as assigned to it under Section 2(f) of the Government Securities Act, 2006.
This ensures consistency with the existing statutory definition governing Government Securities.
5. Effective Date
The newly inserted Entries 13D and 13E, along with the related definition of Government Security, shall take effect from – 01 April 2026
6. Objective of the Amendment
The amendment aims to promote investment in Government Securities by foreign institutional investors and international financial institutions by providing tax certainty and exemption on interest income and capital gains.
By extending these benefits to FIIs and the Bank for International Settlements, the Government seeks to enhance the attractiveness of the Indian Government Securities market and facilitate greater participation by global investors in India’s debt market.
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