Government lists Bill in Parliament to replace Ordinance that exempted FIIs from tax

2026-07-18 · 3 min

UPSC CSE Context Why in News: Government lists Bill to replace Ordinance exempting FIIs and BIS from tax on G Secs. Syllabus Connection: Indian Economy: Taxation, Capital Markets, Foreign Investment Exam Relevance: Highlights tax policy as a tool for attracting foreign capital and deepening debt markets. Core Issue Bill to replace Ordinance exempting FIIs/BIS from tax on G Secs. Key Development: Bill listed for Monsoon Session to convert June 2026 Ordinance into Act. Stakeholders: Government of India Foreign Institutional Investors FIIs Bank of International Settlements BIS Static Knowledge High Value Background: Ordinance making power under Article 123 allows President to promulgate when Parliament not in session. FIIs invest in Indian securities; capital gains tax and interest tax affect their returns. Exam Linkage: Useful for questions on tax exemptions, foreign investment, and legislative process. Concepts in Context: Capital gains tax: tax on profit from sale of assets; exemption

## UPSC CSE Context **Why in News:** Government lists Bill to replace Ordinance exempting FIIs and BIS from tax on G-Secs. **Syllabus Connection:** Indian Economy: Taxation, Capital Markets, Foreign Investment **Exam Relevance:** Highlights tax policy as a tool for attracting foreign capital and deepening debt markets. ## Core Issue Bill to replace Ordinance exempting FIIs/BIS from tax on G-Secs. **Key Development:** Bill listed for Monsoon Session to convert June 2026 Ordinance into Act. **Stakeholders:** - Government of India - Foreign Institutional Investors (FIIs) - Bank of International Settlements (BIS) ## Static Knowledge **High-Value Background:** - Ordinance-making power under Article 123 allows President to promulgate when Parliament not in session. - FIIs invest in Indian securities; capital gains tax and interest tax affect their returns. **Exam Linkage:** - Useful for questions on tax exemptions, foreign investment, and legislative process. **Concepts in Context:** - Capital gains tax: tax on profit from sale of assets; exemption aims to boost investment. - Sovereign debt market: government securities market; deepening it improves liquidity and attracts foreign capital. ## Dynamic Analysis ### Economy - Tax exemption reduces fiscal revenue but aims to attract stable foreign capital inflows. - Deepening sovereign debt market can lower borrowing costs for government. - Exemption may improve India's ranking in global bond indices, increasing FII participation. - Policy response to global volatility: geopolitical tensions, crude oil price spikes, supply chain disruptions. ### Governance - Use of Ordinance power reflects urgency but bypasses parliamentary scrutiny initially. - Conversion to Bill ensures legislative approval and democratic legitimacy. - Exemption targets specific entities (FIIs, BIS) raising questions about equitable tax treatment. ## Prelims Takeaways - Ordinance under Article 123 requires parliamentary approval within 6 weeks of reassembly. ## Mains Value Addition **Arguments:** - Tax exemptions can attract foreign capital but reduce fiscal space. - Deepening debt markets enhances financial stability and reduces external vulnerability. - Ordinance route should be used sparingly; regular legislation ensures accountability. **Data Points:** - Ordinance promulgated on June 5, 2026. **Counterpoints:** - Exemption may be seen as preferential treatment for foreign investors over domestic ones. - Revenue loss from tax exemption could be significant if FII investments grow substantially. ## Way Forward - Ensure Bill is debated thoroughly in Parliament to address concerns about revenue loss. - Monitor impact on FII inflows and sovereign bond yields to assess policy effectiveness. - Consider sunset clauses or periodic review of tax exemptions to align with fiscal goals.

Source: Economy