India just made its government bonds a lot more appealing to foreign money. On June 5, the government announced it would exempt foreign institutional investors and the Bank for International Settlements from income tax on both interest and capital gains earned from Indian government securities.
The move is retroactive to April 1, 2026, meaning foreign investors who already parked capital in Indian debt this fiscal year get the benefit too.
What exactly changed
Before this announcement, foreign investors buying Indian government bonds faced a 12.5% long-term capital gains tax and a 20% withholding tax on interest income. Both are now gone for eligible foreign institutional investors, or FIIs.
The policy was enacted via executive order because Parliament was not in session at the time. India’s government published the exemption through a Gazette notification, giving it immediate legal force. Plans for this kind of tax relief had been circulating since at least May 14, when reports first surfaced about the government weighing the move.
