New Delhi, June 6 (APAC Media): The centre has announced a series of reforms aimed at boosting foreign participation in India’s Government Securities (G-Sec) market, including tax exemptions on interest income and capital gains, expansion of the Fully Accessible Route (FAR), and easing of investment restrictions for foreign investors.
The measures, outlined in a background note released by the Finance Ministry on Saturday, are part of the government’s broader strategy to deepen India’s bond market, attract long-term foreign capital and strengthen the country’s position as a leading global investment destination.
The revised framework exempts FPIs and FIIs from paying tax on returns from government securities, including interest income and capital gains generated through their disposal or redemption.
FPI Investments in Government Securities (as on 12 May 2026)
| Route | FPI Holdings | Outstanding Stock | Share |
|---|---|---|---|
| General Route | ₹54,091 crore | ₹64.78 lakh crore | 0.83% |
| FAR | ₹3,21,080 crore | ₹47.63 lakh crore | 6.74% |
| Total | ₹3,75,171 crore | ₹112.42 lakh crore | 3.34% |
The exemption applies to income generated on or after April 1, 2026.
“The reforms aim to attract stable long-term foreign capital, deepen the G-Sec market and strengthen India’s debt market by broadening and diversifying the investor base,” the government said.
Taxation of Foreign Investors on G-Secs: Before vs New Regime
| Component | Earlier Tax Regime | New Tax Regime (1 April 2026) |
|---|---|---|
| Interest income on G-Secs | Taxed at 20% | NIL (Tax Exempt) |
| Short-term capital gains | Taxed up to 30% | NIL (Tax Exempt) |
| Long-term capital gains | Taxed at 12.5% | NIL (Tax Exempt) |
| Overall impact | Returns partially taxable in India | Fully exempt for FPIs/FIIs |
Before the amendment, interest income from G-Secs was taxed at 20 per cent, while short-term capital gains were taxed at up to 30 per cent and long-term capital gains at 12.5 per cent.
In another significant step, the government expanded the FAR framework to include newly issued 15-year, 30-year and 40-year government securities, along with sovereign green bonds issued in FAR-eligible tenors.
The route allows foreign investors to invest in designated securities without many of the restrictions applicable under the General Route.
Officials said the move would broaden investment opportunities across the maturity spectrum and encourage participation in long-duration sovereign debt instruments.
The government has also removed short-term investment limits, concentration limits and security-wise investment caps under the General Route.
However, the overall investment ceilings remain unchanged at 6 per cent of the outstanding stock of central government securities and 2 per cent of state government securities.
According to official data, FPIs held government securities worth ₹3.75 lakh crore as of May 12, 2026, accounting for 3.34 per cent of the total outstanding G-Sec stock of ₹112.42 lakh crore. Investments through FAR stood at ₹3.21 lakh crore, representing the bulk of foreign holdings.
The government said greater foreign participation would improve market liquidity, strengthen price discovery, support the development of a smoother yield curve and reduce borrowing costs. The reforms are also expected to facilitate the inclusion of Indian bonds in major global indices and strengthen the integration of India’s financial markets with the global economy.
“These measures will provide a more seamless investment experience aligned with leading global markets and encourage wider participation from global investors seeking opportunities in one of the world’s fastest-growing major economies,” the government said.
With the latest reforms, the government aims to create a more competitive and investor-friendly framework for foreign participation in government securities, a move expected to support capital market development and reinforce India’s growth story in the years ahead.
–ENDS–
Disclaimer:Â Views expressed are those of experts and do not reflect APAC Media. This is for informational purposes only, not financial advice. We are not responsible for investment decisions. Please consult a qualified financial advisor before investing.
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