The Government of India and the Reserve Bank of India introduced a major policy package to simplify market access and attract global institutional money into government securities (G-Secs). This policy update is implemented through three official instruments: Ministry of Finance Press Release, Income-tax (Amendment) Ordinance, 2026 (the ‘Ordinance’), and the RBI’s A.P. (DIR Series) Circular No. 11 issued on June 05, 2026.
Complete Tax Elimination: Through the Income-tax (Amendment) Ordinance, 2026, all interest income, short-term capital gains, and long-term capital gains earned by eligible foreign funds and the Bank for International Settlements (BIS) from Government Securities (G-Secs) are now 100% tax-exempt (reduced to NIL) backdated to 1 April 2026. Any investment losses on these specific transactions will be completely ignored for tax purposes.
Dismantling of Regulatory Barriers: The RBI has immediately removed key investment limits under the General Route—specifically abolishing the 30% short-term investment cap, concentration limits, and individual security caps—while keeping overall macro limits at 6% for Central G-Secs and 2% for State Government Securities. Additionally, the limit-free Fully Accessible Route (FAR) has been expanded to include all new 15, 30, and 40-year government bonds and select Sovereign Green Bonds.
Taken together, these measures simplify market access, minimize operational friction, and position Indian sovereign debt to align closely with international financial benchmarks and global bond index inclusions. This Tax cum Regulatory Alert summarizes the changes and outlines key investment changes for foreign institutional investors.
To read the complete alert: Click Here
Please note that the above narration is only a summary based on our understanding of the ruling. This summary should not be construed as advice, including any advice that may only be provided by a qualified legal professional. It serves as a technical summary to keep you informed about the latest tax issues. Please reach out to your SHM SPOC for specific queries and applicability.
We hope you find this update useful.