Data from the Clearing Corporation of India Ltd (CCIL) indicates that FPI holdings in FAR securities reached ₹3.32 lakh crore on Tuesday, an increase from ₹3.23 lakh crore as of June 3.
FAR enables non-resident investors to purchase specified Government of India dated securities without any investment limits.
”The enthusiasm from FPIs is evident, as they accounted for nearly 75 percent of the net purchases in G-secs under the FAR category during April and May. This move also bolsters India’s bid for inclusion in major global bond indices, like Bloomberg’s sovereign bond index, which deferred its decision earlier this year,” stated Mataprasad Pandey, vice-president at Arete Capital.
On June 5, the government issued an ordinance amending the Income Tax Act, offering tax exemptions on interest income and capital gains from the sale, exchange, or transfer of government securities held by FPIs. This exemption is retroactive to April 1, 2025.
This initiative aims to draw more foreign capital into the domestic debt market and support the rupee against external pressures.
Currently, foreign investors face a long-term capital gains tax of 12.5 percent on listed shares and bonds held for over 12 months, while government bonds incur a 20 percent withholding tax on interest earned.
In its June monetary policy announcement, the Reserve Bank of India (RBI) also broadened the range of securities available under FAR by incorporating all new issuances of 15-year, 30-year, and 40-year tenor government securities.
Additionally, the central bank lifted limits related to short-term investments, concentration, and individual securities for FPI investments under the general route.
”These actions, along with the tax advantages provided by the government recently, should aid in attracting foreign capital for governmental borrowing,” stated the RBI during its monetary policy announcement.
Through these measures, the government securities market has become more accessible to foreign investors, as India aims to deepen its bond market and encourage greater participation from global investors.
(Edited by : Srabastee Biswas)
