Foreign portfolio investors are advocating for expedited remittance processes following the Indian government's introduction of comprehensive tax exemptions on government securities. According to reports from The Economic Times, an Income-tax (amendment) ordinance by the government on June 5, 2026, completely exempted FPIs from taxes on G-Secs with effect from April 1, 2026. This exemption abolishes withholding taxes on interest and capital gains from these investments, improving market efficiency for foreign investors.
Secondary market transactions in government securities are currently settled on the next business day, but remittances were typically possible only a day after settlement. As reported by The Economic Times, custodian banks handling FPIs' securities and funds waited for remittance letters from accounting firms stating the tax that must be withheld before funds could leave the country. At a meeting with RBI officials on Thursday, fund representatives, banks and accounting firms discussed the matter, with suggestions for quarterly or annual letters from accountants stating no tax needs to be paid.
Overseas bond investors have demonstrated significant resilience compared to their equity counterparts. According to The Economic Times, net FPI G-Sec purchases were $7.3 billion in 2025 and $9.8 billion since January 2026. This contrasts sharply with FPIs' net sales of $18.8 billion and $23.05 billion of equity during the corresponding periods. The tax exemption removes timing risks and settlement friction, allowing FPIs to book forex ahead of time and remit sale proceeds faster.
For outward remittance the very next day, banks must buy dollars in 'cash deal' where settlement happens the same day. As reported by The Economic Times, if a trade happens on Monday, a bank must buy dollars Tuesday morning, hours before G-Sec sale proceeds are credited to FPI's bank account late afternoon. However, banks noted that trades are settled through Clearing Corp acting as counterparty, which should facilitate the process.
The tax exemption removes daily remittance letter requirements, enabling FPIs to book forex ahead of time and remit sale proceeds faster. According to Tejas Desai, partner at EY, quoted by The Economic Times, the tax exemption does more than removing tax cost - it simplifies remittance process. However, while there's no tax, a letter would still be required for FPIs to file tax returns, particularly for funds that trade both bonds and equities where dividend and capital gains are taxed.
