India Makes Government Bonds More Attractive for Foreign Investors

Tax exemption and easier investment access for FPIsIndia has introduced important changes to encourage more foreign investment in Government Securities.The reforms include:

• tax exemption on interest and capital gains;
• wider access under the Fully Accessible Route;
• removal of certain investment restrictions; and
• access to a Government Securities market of more than ₹112 lakh crore.

What Has Changed?

Specified Government Security Income Becomes Tax-Exempt for Eligible FIIsFrom 1 April 2026, eligible Foreign Portfolio Investors
will not have to pay Indian income tax on:

• interest earned from Government Securities; and
• profit earned from the sale, transfer, exchange or redemption of Government Securities.

A listed Government Security is treated as a long-term asset when held for more than 12 months. For an unlisted Government Security, the period is more than 24 months.

Easier Investment Access

Wider Access Through the Fully Accessible Route
The Fully Accessible Route allows eligible foreign investors to invest in specified Government Securities without the normal investment limits applicable under the General Route.The expanded access includes:

• new 15-year Government Securities;
• new 30-year Government Securities;
• new 40-year Government Securities; and
• eligible Sovereign Green Bonds.

Certain restrictions under the General Route are also being removed, including:

• short-term investment limits;
• concentration limits; and
• security-wise investment limits.

However, the total investment limits remain:

• 6% of outstanding Central Government Securities; and
• 2% of outstanding State Government Securities.

Size of the Market

Foreign Investment in Government Securities
As of 12 May 2026, FPIs held Government Securities worth about ₹3.75 lakh crore.

Around 86% of total FPI investment in Government Securities is already made through the Fully Accessible Route.This shows that FAR has become the main route used by foreign investors.

Benefit to Investors

Higher Post-Tax Returns
Suppose an FPI earns ₹10 crore as interest from Government Securities.

The investor may therefore retain an additional ₹2 crore on interest income of ₹10 crore.

Opportunity for GIFT IFSC

What This Means for GIFT CityThe reforms may create new opportunities for fund managers and financial institutions operating from GIFT IFSC.

• Possible opportunities include;
• Government bond funds;
• sovereign-debt investment products;
• long-term fixed-income strategies;
• Sovereign Green Bond funds;
• treasury-management services; and
• portfolio management services for foreign investors.

FPIs currently hold only 3.34% of the total eligible Government Securities market of ₹112.42 lakh crore.This suggests that there is significant scope for more foreign investment in Indian Government Securities.