New Delhi
The government on Friday announced a series of measures to attract foreign investment to shore up India’s capital account, including changes in rules related to investments by foreign individuals in Indian stocks, offering more investment options to foreign portfolio investors (FPIs), and making income on government bonds tax-free with retrospective effect from April 1.
The Union Finance Ministry said in a statement that the move is in line with the government’s commitment to strengthen India’s position as a leading global investment destination and deepen the capital market.
He added that based on recent initiatives to enhance the ease of doing business in capital markets, further reforms have been announced to make foreign investment in stocks and government sectors more accessible, efficient and competitive globally.
The ministry said the measures are aimed at enhancing ease of investment for individuals resident outside India (PROIs) and foreign portfolio investors (FPIs), and attracting stable, long-term foreign capital inflows.
With India’s current account under pressure, due to risks to Indian software services exports (from AI), and geopolitical developments, a stable capital account will help.
The liberalization of investments by individuals residing outside India is certainly being done as per the announcement made in Budget 2026-27. It proposed that PROI would be allowed to invest in equity instruments of listed Indian companies through the portfolio investment scheme which was earlier only available to non-resident Indians (NRIs) and foreign citizens of India (OCIs).
It was also proposed to increase the investment limit for an individual PROI under this scheme from 5% to 10% in any company, with the aggregate investment limit for all individual PROI to 24%, from the current 10%. The government notified these changes on Friday.
“This notification will facilitate more proactive mobilization of foreign portfolio capital by leveraging existing onboarding regimes already in place for NRI/OCI investors. Simplifying onboarding requirements and reducing compliance will further enhance the ease of doing business, while attracting a broader base of relatively stable individual foreign investors. This will also support larger and more stable foreign inflows into Indian equity markets,” the ministry said in its statement.
The government also relaxed the regulatory framework for foreign portfolio investments in government securities. The government has decided to remove the three restrictions – short-term investment limit, concentration limit and security limit for FDI investments in government securities with respect to FDI investments under the general route, while retaining the overall quantitative investment limit of 6% of the outstanding stock of central government securities and 2% of state government securities (SGS), the ministry said in a statement.
“These measures will help develop a smooth yield curve, attracting regular and stable inflows of patient, long-term foreign capital, including long-term investors such as pension funds, insurance companies and sovereign wealth funds. This is also expected to boost the country’s foreign exchange inflows,” the ministry added.
The government also allowed tax breaks for foreign investors to ensure a stable, systematic flow of permanent and patient foreign capital and long-term investors such as pension funds, insurance companies and sovereign wealth funds.
Recognizing the importance of a competitive tax system in attracting global capital, the government decided to rationalize the tax treatment applied to investments by foreign institutional investors in government securities, by exempting these investments from income tax on any interest or capital gains. “This move will align taxes on G-Secs with many similar jurisdictions,” she added.
The exemption applies from 1 April 2026 to any interest or capital gains arising by foreign investment enterprises on or after the date in respect of investments in G-Secs. A similar income tax exemption is also provided to the Bank for International Settlements (BIS) for any interest or capital gains on its investments in G-Secs.
“Together, these reforms aim to reduce operational complexities, simplify market access, and provide a more seamless investment experience compared to leading international financial markets,” the Ministry of Finance said. These measures are expected to expand the investor base in Indian equities and government securities and encourage wider participation from global investors seeking exposure to one of the world’s fastest growing major economies, it added.
