This article explains the newly introduced G-Sec tax exemption for FIIs under the Income-tax Act, 2025, pursuant to the Income-tax (Amendment) Ordinance, 2026.
‣ What Has Changed? – Interest and capital gains from government securities are now exempt for FIIs and BIS under Entries 13D and 13E of Schedule IV.
‣ Who Can Claim the Exemption? – The benefit is available to eligible Foreign Institutional Investors and the Bank for International Settlements, subject to prescribed reporting requirements.
‣ Which Income Is Covered? – The exemption applies to interest on G-Secs and capital gains arising from their sale, exchange or transfer.
‣ What Is the TDS Impact? – Since such income no longer forms part of taxable income, no TDS is required on eligible G-Sec income payable to FIIs and BIS.
‣ From When Is It Applicable? – The exemption applies from 01-04-2026, i.e., tax year 2026-27 onwards, without any sunset date.
