FPIs Pour ₹35,000 Crore Into Indian Bonds After Tax Exemption

Foreign portfolio investors have pumped roughly ₹35,000 crore into Indian bonds so far in June, according to Clearing Corporation of India Ltd data. The surge followed a government ordinance on June 5 that exempted FPIs from income tax on interest income and capital gains from government securities.

All of the June inflows landed in the Fully Accessible Route, or FAR, which lets non-resident investors buy specified government bonds without investment ceilings. FPI holdings in FAR securities hit ₹3.58 lakh crore on Tuesday, up from ₹3.23 lakh crore on June 3.

The tax exemption applies retrospectively from April 1, 2025. Before the ordinance, foreign investors faced a 12.5% long-term capital gains tax on listed bonds held more than 12 months and a 20% withholding tax on interest from government bonds.

The move is part of a broader push to attract foreign capital into India's debt market and support the rupee. The Reserve Bank of India, in its June monetary policy announcement, expanded the FAR universe to include all new issuances of 15-year, 30-year and 40-year government securities. It also removed limits on short-term investment, concentration and individual securities for FPI investments under the General Route.

“These measures along with the tax benefits provided by the government this morning should help attract foreign capital for government borrowing,” the RBI said during the policy announcement.

March saw outflows of ₹17,688 crore. April and May recorded inflows of ₹5,262 crore and ₹5,512 crore respectively. June's pace marks a clear acceleration.

The government securities market has been opened further to foreign investors as India seeks to deepen the bond market and draw more global participation.