Government Plans To Replace Income-Tax Ordinance With Amendment Bill

The Centre is likely to introduce the Income-tax (Amendment) Bill, 2026, during the Monsoon Session of Parliament beginning July 20. The proposed legislation will replace an ordinance promulgated earlier this year and seeks to amend provisions of the Income-tax Act.

The Bill is intended to replace the Income-tax (Amendment) Ordinance, 2026, which was issued in June to provide tax relief on interest income and capital gains earned by certain foreign investors from investments in government securities. The ordinance took effect from April 1, 2026.

According to PTI, the government said the proposed legislation is aimed at strengthening India's sovereign debt market by encouraging stable overseas capital inflows and improving liquidity. It added that the move comes amid global economic uncertainty, geopolitical tensions, rising crude oil prices and supply chain disruptions, while also seeking to ease pressure on the rupee by attracting foreign investment.

Under the ordinance, eligible foreign investors were exempted from income tax on interest income and capital gains arising from the sale, exchange or transfer of government securities. The government had introduced the measure to encourage greater foreign participation in the government securities market.

As Parliament was not in session, the government brought the changes through an ordinance by invoking the President's powers under Article 123 of the Constitution. The gazette notification stated that immediate action was necessary to implement the proposed tax changes.

Currently, foreign investors are liable to pay a 12.5 per cent long-term capital gains tax on listed shares and bonds held for more than 12 months. They are also subject to a 20 per cent withholding tax on interest earned from government bonds.

The ordinance, signed by President Droupadi Murmu, also defines the Bank for International Settlements (BIS) as an international financial institution established in 1930 and headquartered in Basel, Switzerland. It further retains the existing statutory definitions relating to foreign institutional investors and government securities under Indian law.

This bill is among the new legislation proposed for introduction during the Monsoon Session of Parliament.