Foreign investors inject ₹35,000 crore into Indian bonds following government tax exemption initiative.

Foreign portfolio investors have invested approximately ₹35,000 crore in Indian bonds this month, following the government’s exemption from income tax on interest and capital gains from these investments, as reported by Clearing Corporation of India Ltd (CCIL) data.

All these investments are categorized under the Fully Accessible Route (FAR) for Indian government securities.

This is significant as FAR permits non-resident investors to invest in designated Government of India-dated securities without any investment limits, according to the data.
FPI holdings in FAR securities reached ₹3.58 lakh crore on Tuesday, an increase from ₹3.23 lakh crore on June 3, as indicated by the data.

Previously, foreign investors invested ₹5,512.108 crore in May and ₹5,262.016 crore in April, although there were outflows of ₹17,687.988 crore in March.

The government enacted an ordinance on June 5 to amend the Income Tax Act, granting tax exemptions on interest income and capital gains from the sale, exchange, or transfer of government securities by FPIs.

This exemption is effective retroactively from April 1, 2025.

This initiative aims to attract more foreign capital into the domestic debt market and stabilize the rupee amid external pressures.

At present, foreign investors face a long-term capital gains tax of 12.5 per cent on listed shares and bonds held for over 12 months, while interest earned on government bonds incurs a 20% withholding tax.

The Reserve Bank of India (RBI), in its monetary policy announcement for June, also broadened the range of securities eligible under the FAR by including all new issuances of 15-year, 30-year, and 40-year tenor government securities.

The central bank has also lifted restrictions concerning short-term investments, concentration, and individual securities for FPI investments under the General Route.

”These measures, along with the tax benefits introduced by the government today, should incentivize foreign capital for government borrowing,” the RBI stated during its monetary policy announcement.

The government securities market has been further opened to foreign investors through these initiatives as India aims to enhance its bond market and encourage greater involvement from global investors.

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