FII tax exemption in India: Here’s all you need to know

Foreign Institutional Investment (FII) gets income tax exemption on interest, capital gains for Government Securities.

How were FIIs taxed on Government Securities under the Income-tax Act, 1961?

Under the Income-tax Act, 1961, interest on certain Government Securities was exempt under section 10(15) till 2002. Subsequently, concessional taxation at 5 per cent was provided under section 115AD read with section 194LD for specified periods between 2013 and 2023. In the absence of any exemption, interest income and capital gains from Government Securities are taxable under the normal provisions applicable to FIIs under section 115AD of the Income-tax Act, 1961.

How are FIIs taxed in the Income-tax Act, 2025?

Section 210 of the Income-tax Act, 2025 provides a specific taxation framework for Foreign Institutional Investors (FIIs) in respect of income from securities and capital gains arising from their transfer.