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

Published 2026-07-18 · Updated 2026-07-18 · 3 min · 372 words

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.

Primary/reference source: Economy