Govt to Introduce Income-tax Amendment Bill in Monsoon Session to Replace Tax Relief Ordinance

The Central government is set to introduce the Income-tax (Amendment) Bill, 2026 during the upcoming Monsoon Session of Parliament to replace an Ordinance that grants income tax exemptions to foreign investors on interest earnings and capital gains from investments in government securities (G-secs) .

The proposed legislation aims to strengthen India's sovereign debt market by attracting stable foreign capital inflows at a time of heightened global economic uncertainty. The Ordinance, promulgated in June, was introduced as an immediate measure to ease pressure on the depreciating rupee , which has come under strain due to the West Asia crisis , rising crude oil prices, and disruptions in global supply chains.

According to the government's legislative agenda, the Bill seeks to deepen the government securities market, improve liquidity, and encourage long-term overseas investment amid volatile global financial conditions. The tax exemptions, effective April 1, 2026 , cover both interest income and capital gains arising from the sale, exchange, or transfer of government securities by eligible foreign investors.

Before the amendment, foreign investors were liable to pay 12.5% long-term capital gains tax on listed shares and bonds held for more than 12 months, along with a 20% withholding tax on interest earned from government bonds. The Ordinance removed these tax liabilities to make Indian sovereign debt more attractive to overseas investors.

Signed by President Droupadi Murmu under Article 123 of the Constitution , the Ordinance was issued because Parliament was not in session and immediate legislative action was considered necessary. It also defines the Bank for International Settlements (BIS) as the international financial institution headquartered in Basel, Switzerland, while retaining existing statutory definitions for foreign institutional investors and government securities.

Apart from the Income-tax Amendment Bill, the government is also expected to introduce the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026 , aimed at improving the ease of doing business, strengthening mechanisms to address delayed payments to MSMEs, enforcing arbitral awards, and providing greater flexibility to states in the composition of Micro and Small Enterprises Facilitation Councils (MSEFCs) . The government will also present Demands for Excess Grants for the financial year 2022-23 during the session.