The President of India, Smt. Droupadi Murmu, has promulgated The Income-tax (Amendment) Ordinance, 2026 (Ordinance No. 2 of 2026) on 5th June, 2026, in exercise of the powers conferred by clause (1) of Article 123 of the Constitution of India. The Ordinance has been published in the Gazette of India Extraordinary, Part II — Section 1, vide Notification No. CG-DL-E-05062026-273164, dated 5th June, 2026 (Jyaishtha 15, 1948 Saka). The Ordinance was necessitated as Parliament is not in session and the President was satisfied that circumstances exist requiring immediate action.
Retrospective Effect from 1st April, 2026:
The Ordinance shall be deemed to have come into force on 1st April, 2026, ensuring that the benefit of the exemption is available to eligible entities from the commencement of the current financial year.
Amendment to Schedule IV of the Income-tax Act, 2025 — New Exemption Entries Inserted:
The Ordinance amends Schedule IV of the Income-tax Act, 2025 (Act 30 of 2025) by inserting two new serial entries — 13D and 13E — in the exemption Table. These entries provide a full income-tax exemption in respect of:
- (i) Any interest earned on Government securities; and
- (ii) Any capital gains arising from the sale, exchange, or transfer of such Government securities.
Eligible Beneficiaries:
The exemption under Sl. No. 13D is available to Foreign Institutional Investors (FIIs) as defined under section 210(6)(a) of the Income-tax Act, 2025. The exemption under Sl. No. 13E is available to the Bank for International Settlements (BIS) — the international financial institution established at the Hague Conference in 1930 and headquartered at Basel, Switzerland. Both categories of entities shall be required to furnish information in such form and manner as may be prescribed by the Central Government.
Definition of ‘Government Security’:
For the purposes of Sl. Nos. 13D and 13E, the term ‘Government security’ shall have the same meaning as assigned to it under section 2(f) of the Government Securities Act, 2006 (Act 38 of 2006), thereby encompassing Central Government dated securities, Treasury Bills, and all other sovereign debt instruments issued under that Act.
Policy Significance — Reducing Tax Friction for Foreign Investors:
Prior to this Ordinance, Foreign Institutional Investors were liable to a 12.5 per cent long-term capital gains tax on listed bonds held for more than twelve months, along with applicable withholding tax on interest income from Government securities. The complete exemption now provided under Ordinance No. 2 of 2026 significantly reduces the cost of investment for overseas investors in India’s sovereign debt market and addresses a long-standing concern of the global investor community.
Deepening India’s Government Bond Market and Global Integration:
Indian Government Securities have in recent years been included in major global bond indices, including the J.P. Morgan Emerging Market Bond Index and the Bloomberg Emerging Market Local Currency Bond Index, facilitated by the Reserve Bank of India’s Fully Accessible Route (FAR). This tax reform is expected to further enhance the attractiveness and competitiveness of Indian sovereign debt, deepen bond market liquidity, diversify the investor base beyond domestic financial institutions, and improve price discovery in the Government securities market.
Compliance Requirement:
The exemption under both Sl. No. 13D (FIIs) and Sl. No. 13E (BIS) shall be subject to the furnishing of requisite information in such form and manner as may be prescribed. Detailed procedural requirements and reporting formats are expected to be notified separately by the Central Government.
The Income-Tax (Amendment) Ordinance, 2026 can be accessed at: https://a2ztaxcorp.net/wp-content/uploads/2026/06/The-Income-Tax-Amendment-Ordinance-2026.pdf
