Income Tax Ordinance 2026: The Indian government has taken important steps to boost the country’s economy and increase foreign capital flows. The government has implemented the Income Tax (Amendment) Ordinance, 2026. Its purpose is to rapidly promote foreign investment in Indian government securities. This decision provides significant tax relief to foreign investors.
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Bumper tax exemption for foreign investors
This new ordinance significantly amends Schedule IV of the Income Tax Act, 2025. Two new categories, 13D and 13E, have been added. These provide complete tax exemption for specific financial instruments. Selected foreign entities will now be exempt from tax on interest earned on government securities and capital gains arising from their transfer or sale. Furthermore, these investments will also be exempt from withholding tax.
These investors will get the most benefit
This huge exemption will primarily benefit two major groups: Foreign Institutional Investors (FIIs) and the Bank for International Settlements (BIS). FIIs invest heavily in Indian markets, while the BIS, established in 1930 and headquartered in Basel, Switzerland, will also fall under this scope. However, to maintain transparency in this entire process, these eligible institutions will have to provide complete information to the government in a prescribed form and format. Significantly, this ordinance will be considered effective only from April 1, 2026.
Extension of Fully Accessible Route (FAR)
To attract foreign investors, the Reserve Bank of India (RBI) has significantly expanded the scope of its Fully Accessible Route (FAR). This route now includes new government securities with longer maturities of 15, 30, and 40 years. FAR is a Reserve Bank regulation that allows non-resident Indians (NRIs) and foreign entities to invest as much as they wish in government securities without any fixed limit or cap.
Additionally, the investment limit for Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) in listed shares without SEBI registration has been raised. In his address, Reserve Bank of India Governor Malhotra said that all individuals residing abroad (PROIs) will now be given the same facilities as NRIs and OCIs.
CPSEs will get cheap loans
Another important part of this new policy change concerns Central Public Sector Enterprises (CPSEs). The government has introduced a special incentive scheme to promote three- to five-year external commercial borrowings (ECBs). Under this scheme, these public sector companies are being provided concessional foreign exchange swaps until September 30, 2026.
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