Government of India (GoI) passed an ordinance waiving the 12.5% long term capital gains tax (LTCG) charged on foreign institutional investment in government bonds , according to a statement released 5 June.The exemption will take effect from 1 April 2026. “Recognising the importance of a competitive tax regime in attracting global capital, the Government has decided to rationalise the tax treatment applicable to investments by FPIs in Government Securities, by exempting such investments from income tax on any interest or capital gain. This step will align the taxation on G-Secs with many comparable jurisdictions,” the statement read. Further, the government also announced that 15, 30 and 40 year bonds will be added to investment under fully accessible route (FAR) framework, that allows non-residents to invest in specific government securities, known as “specified securities,” without facing any quantitative restrictions. Sovereign Green Bonds(SGBs) have also been included in the FAR basket of securities. Caps on investment, concentration and security wise limits on FPI investment through the general route were also removed while keeping the overall quantitative investment limit of six percent of the outstanding stock of the Central Government securities and two percent of the State Government securities (SGSs).The move comes at a time when FIIs sold ₹2.5 lakh crore worth of Indian securities, going by data from NSDL. However the larger part of the exit came on account of selling in equity and not debt securities. To be sure, FIIs have been net buyers of FAR bonds in four of the past six month in calendar year 2026. As of June 5 2026, FIIs bought ₹16,567 crore in FAR bonds and sold just ₹4025 crore in general route. In equities however, the sales has been over ₹2.6 lakh crore , being one of the significant sources of rupee depreciation against the dollar. “In practical terms, this would make Indian government securities more tax-efficient for overseas investors and could help attract stronger foreign inflows into the bond market. The proposal is being discussed as an ordinance-based amendment to the tax law, so the final position will depend on the text of the notification and when it comes into force,” said CA Chandni Anandan, Tax Expert at ClearTaxExperts while welcoming the move also are cautious of the intended effects on FII flows.“The two pools of capital are different investors with different mandates and different return expectations. Making gilts cheaper to own does not address why long-only equity investors have been cautious on India. The capital gains structure, the currency risk, the valuation premium over peers. That is where the silence is. The real ask from foreign investors has always been on equities. That remains unanswered,”Further expanding the limit for Person of Indian Origin and NRIs to invest in Indian stock markets were announced in the budget. The notification amending the Foreign Exchange Management Act has also been made , according to the statement. To be sure, the share of NRIs in Nifty listed companies have not crossed 1% in the past decade. Published - June 05, 2026 07:17 pm IST