The Indian government has issued a new Income Tax Amendment Ordinance for 2026, a development described as breaking news by NDTV. The ordinance is designed to modify existing provisions under the Income-tax framework, and it introduces a targeted exemption aimed at foreign portfolio investors.
At the center of the change is the treatment of interest income earned from government securities. Under the ordinance, foreign institutional investors (FIIs) have been exempted from tax on the interest they earn from government securities. This is a notable policy adjustment because interest earned on such instruments has typically been subject to tax under the domestic tax rules, often with relief or specific treatment depending on the nature of the investment and applicable provisions.
The exemption, as highlighted in the reporting, is specifically framed around income from government securities. That means FIIs holding government papers—such as treasury bills, government bonds, and similar instruments—would, under the new ordinance, not have to pay tax on the interest component of returns from these assets. In practical terms, this is expected to improve the post-tax yield for FIIs investing through government securities, potentially making Indian government debt instruments more attractive.
While the core focus is on the FII exemption, the ordinance itself signals a broader intention by the government to amend income tax laws through an ordinance route rather than waiting for the full legislative process. Ordinances are typically used when the government wants to implement changes quickly, usually due to time-sensitive policy needs. This makes the announcement significant not only for investors but also for the timeline of how tax rules may evolve in the coming period.
For market participants, the exemption may have implications for capital flows into Indian government securities. Foreign investors often evaluate investments based on risk, liquidity, and expected returns net of taxes. A tax exemption on interest would likely reduce the tax drag on returns and could therefore influence investment decisions, demand, and pricing in the debt market.
The change also highlights the government’s approach to investor-related taxation and the desire to align tax treatment with economic objectives, such as attracting foreign capital or supporting market stability. Government security yields and the participation of FIIs have historically played a role in determining broader financial conditions. By granting relief specifically for interest earned by FIIs from government securities, the ordinance can be seen as a measure that directly addresses foreign investor returns.
The ordinance’s issuance is framed as part of an Income Tax Amendment Ordinance, 2026. While the available text emphasizes the exemption for FIIs, it also suggests that the government is actively reviewing and updating tax provisions. These amendments may affect how interest income is classified, taxed, or exempted for certain categories of investors and investment instruments.
For FIIs and their investment managers, the key takeaway is the prospective shift in tax treatment under this new ordinance. They may need to update compliance and reporting assumptions, especially around how interest on government securities is accounted for and whether withholding or other tax-related processes will change for future interest accruals. The practical impact will depend on implementation details, clarifications (if issued), and how the ordinance interacts with existing tax treaties and rules applicable to FIIs.
For domestic stakeholders—such as banks, custodians, and financial intermediaries that handle securities transactions and related tax processes—the ordinance may require adjustments to operational systems. Tax exemptions often necessitate changes to withholding calculations, documentation, and reporting workflows.
Overall, the news indicates a clear, investor-relevant tax relief: FIIs are exempted from tax on interest earned from government securities under the Income Tax Amendment Ordinance, 2026. As this is an ordinance, it represents an immediate policy change that can be implemented faster than standard legislation, and it is likely to attract attention from investors and tax experts alike.
Source: NDTV (as cited in the original post by @Shrimichoudhary).
NDTV Profit: #BREAKING: Govt issues Income Tax Amendment Ordinance, 2026; exempts FIIs from tax on interest earned from government securities. @Shrimichoudhary. #breaking
— @NDTVProfitIndia May 1, 2026
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