A lot of Foreign Institutional Investors (FIIs) and Foreign Portfolio Investors (FPIs) invest in Indian equities and assets that attract interest or capital gain tax depending on the holding period. Though the government from time to time announces exemptions on such gains to attract foreign investment, in most cases, FIIs and FPIs have to pay LTCG. But, has the government recently come up with an order where it has announced scrapping Long-term Capital Gain (LTCG) tax for such foreign investors?
Has the central government scrapped LTCG tax for foreign investors?
This was the question Rajya Sabha member Neeraj Shekhar asked from the Finance Ministry on Wednesday Shekhar asked whether the government had recently scrapped LTCG tax for foreign investors and whether it was considering extending a similar benefit to domestic institutional and retail investors during the current financial year.
Pankaj Chaudhary, Minister of State, Ministry of Finance, replied that there is no such proposal under consideration for foreign investors.
Tax exemption for foreign investors on income from G SecsAdding further, the minister said, “Through the Income-tax (Amendment) Ordinance, 2026, the government has only rationalised the tax treatment applicable to investments by FPIs only in Government Securities (G-Secs), by exempting such investments from income tax on any interest or capital gain.”
Chaudhay was referring to the government’s recent initiatives to improve India's reputation as a top international investment destination. The foremost of them was to exempt investments in Government Securities (G-Secs) from income tax on any interest or capital gains.
According to a Press Information Bureau (PIB) statement dated June 6, 2026, “The government has introduced a series of measures to attract FPIs to the government securities market. These include tax exemptions on interest income, LTCG and STCG, expansion of specified securities under the Fully Accessible Route (FAR), and simplified investment norms.”
Is the government contemplating to scrap LTCG for domestic institutional and retail investors?
Chaudhary said that there was no such proposal under consideration.
Chaudhary added, “Tax policies, including capital gains tax rates, are reviewed periodically as part of the annual budgetary process after taking into consideration macro-economic parameters,” says Chaudhary.
Tax benefits for FPIs under New Tax Regime
The PIB release said that under the new regime, FPIs/FIIs will be exempt from:
Interest income earned from G-Secs; and
Capital gains arising from the sale, transfer, exchange or redemption of G-Secs.
The exemption will apply to income arising on or after April 1, 2026. The Income-tax (Amendment) Ordinance, 2026, inserted specific provisions granting this exemption to FIIs investing in G-Secs.
Classification of capital gains in G-Securities
As per the PIB release, Long-Term Capital Gains (LTCG) arise when a Government Security is held beyond the prescribed holding period.
Listed G-Secs: More than 12 months.
Unlisted G-Secs: More than 24 months.
Short-Term Capital Gains (STCG) arise when a Government Security is held for less than the prescribed holding period.
Listed G-Secs: Up to 12 months.
Unlisted G-Secs: Up to 24 months.
What are FPIs?
Foreign Portfolio Investment (FPI) refers to investments made by foreign individuals, institutional investors, or funds in financial instruments such as stocks, bonds, mutual funds, and government securities. FPIs do not participate in the management or decision-making of the companies in which they invest and are generally considered passive investors.
