Foreign
Citizens Allowed to Invest in Indian Companies like NRIs and OCIs
Key Announcements
·
The Ministry of Finance has introduced significant reforms to:
o Deepen the Government Securities (G-Sec)
market.
o Increase Foreign Portfolio Investor (FPI)
participation.
o Simplify investment procedures for overseas
investors.
o Attract long-term and stable foreign capital
into India.
1. Liberalisation of Investment by Persons
Resident Outside India (PROIs)
·
Individual Persons Resident Outside India (PROIs) can now invest in equity
instruments of listed Indian companies through the Portfolio Investment Scheme (PIS).
·
Earlier, this facility was available only to Non-Resident Indians (NRIs)
and Overseas Citizens of India (OCIs).
·
Investment limits have been enhanced:
o Individual PROI limit increased from 5%
to 10% in a company.
o Aggregate limit for all PROIs increased
from 10% to 24%.
·
The reform will be implemented through amendments to the Foreign Exchange
Management (Non-Debt Instruments) Rules, 2019.
Benefits of PROI Liberalisation
·
Simplified onboarding and compliance procedures.
·
Easier access to Indian equity markets.
·
Broader participation from global retail and individual investors.
·
More stable and diversified foreign portfolio inflows.
2. Major Reforms in FPI Investment in
Government Securities (G-Secs)
Expansion of Fully Accessible Route (FAR)
The Government has expanded the list of
securities eligible under the Fully Accessible Route (FAR) to include:
·
New Government Security issuances with tenors of:
o 15 years
o 30 years
o 40 years
·
Sovereign Green Bonds (SGrBs) issued in FAR-eligible
tenors.
Relaxation of Restrictions under the General
Route
Three major restrictions on FPI investments
in Government Securities have been removed:
·
Short-term investment limits.
·
Concentration limits.
·
Security-wise investment limits.
Limits Retained
The overall investment ceilings remain
unchanged:
·
6% of outstanding Central Government Securities.
·
2% of outstanding State Government Securities (SGSs).
Additional Simplification
·
Existing "General" and "Long-Term" investment categories
will be merged into a single investment limit framework.
Expected Impact
·
Development of a smoother and more liquid government bond yield curve.
·
Increased participation by:
o Pension funds
o Insurance companies
o Sovereign Wealth Funds (SWFs)
o Other long-term institutional investors
·
Greater foreign exchange inflows and enhanced market depth.
3. Tax Exemption for FPIs Investing in
Government Securities
New Tax Benefits
·
FPIs will be exempt from:
o Income tax on interest earned from Government
Securities.
o Capital gains tax on Government Securities
investments.
Effective Date
·
Applicable from 1 April 2026 onwards.
·
Covers all interest income and capital gains arising on or after this date.
Similar Exemption Extended to BIS
·
The Bank for International Settlements will also receive exemption
on interest and capital gains from investments in Government Securities.
Significance
·
Aligns India's tax regime with several major international markets.
·
Enhances competitiveness of Indian sovereign debt.
·
Encourages durable, long-term foreign capital inflows.
Key Expected Outcomes
·
Easier access for foreign investors to Indian financial markets.
·
Larger and more diversified investor base.
·
Increased liquidity in equity and bond markets.
·
Stronger demand for Government Securities.
·
Enhanced foreign exchange inflows.
·
Improved integration of Indian capital markets with global financial markets.
·
Greater participation by long-term global investors.
Conclusion
The Government's latest reforms represent
one of the most significant liberalisation measures for foreign portfolio investment
in recent years. By expanding investment access, simplifying regulations, and offering
tax exemptions on Government Securities, India aims to attract long-term global
capital, deepen its bond market, and strengthen its position as a leading international
investment destination.
[ABS News Service/06.06.2026]
In line with the Government's commitment
to strengthen India's position as a leading global investment destination and to
deepen the capital market, the Ministry of Finance has taken a series of measures
aimed at enhancing the ease of investment for individual Persons Resident Outside
India (PROIs) and Foreign Portfolio Investors (FPIs), and to attract stable long-term
foreign capital flows.
Building on the recent initiatives to
enhance ease of doing business in capital markets, the Government has undertaken
further reforms to make foreign investment in equities and G-Secs more accessible,
efficient, and globally competitive.
Liberalisation of investment by individual
Persons Resident Outside India under the Foreign Exchange Management (Non- Debt
Instrument) Rules, 2019
The Union Minister for Finance and Corporate
Affairs announced in the Union Budget FY2026-27 that individual Persons Resident
Outside India (PROI) will be permitted to invest in equity instruments of listed
Indian companies through the Portfolio Investment Scheme which was hitherto available
only to NRIs/OCIs; and the investment limit will be increased for an individual
PROI under this scheme from 5% to 10% in any company, with an overall investment
limit for all individual PROIs to 24%, from the current 10%.
To implement the same, Department of Economic
Affairs (DEA) is notifying the Foreign Exchange Management (Non-Debt Instruments)
(Third Amendment) Rules, 2026.
This notification will facilitate a more
proactive mobilisation of foreign portfolio capital by leveraging the existing onboarding
systems already in place for NRI/OCI investors. Simplified onboarding and reduced
compliance requirements would further enhance ease of doing business, while attracting
a broader base of relatively stable individual foreign investors. This will also
support greater and more stable foreign inflows into Indian equity markets.
Review of the regulatory framework for
FPI investment in Government securities
With the view to enhance participation
by FPIs in G-Sec, the Government has decided to expand the list of specified securities
under the Fully Accessible Route (FAR) to also include new issuances in Government
securities in tenors of 15, 30 and 40 years as also Sovereign Green Bonds (SGrBs) in the tenors of FAR-eligible securities. Further, with
respect to FPI investments under General Route, it has been decided to remove the
three restrictions, viz. short-term investment limit, concentration limit and the
security-wise limit for investments by Foreign Portfolio Investors (FPIs) in Government
securities, while retaining the overall quantitative investment limit of 6 per cent
of the outstanding stock of the Central Government securities and 2 per cent of
the State Government securities (SGSs). The sub-categories of investment limits,
viz., 'general' and 'long-term' will also be merged into a single limit for investment
in Government securities and SGSs, respectively.
These measures will help in development
of a smooth yield curve, and attract stable systematic inflow of long-term, patient
foreign capital, including long-term investors such as pension funds, insurance
companies, and sovereign wealth funds. This is also expected to boost foreign exchange
inflows for the country.
Exempt interest and capital gains on G-Secs
from tax
Recognising the importance of a competitive
tax regime in attracting global capital, the Government has decided to rationalise
the tax treatment applicable to investments by FPIs in Government Securities, by
exempting such investments from income tax on any interest or capital gain. This step will align the taxation on G-Secs with
many comparable jurisdictions.
The exemption shall be applicable w.e.f.
01.04.2026, i.e. the exemption shall apply to any interest or capital gains arising
to FPIs on or after 01.04.2026 in respect of investments in G-Secs.
Similar income-tax exemption is also provided
for Bank for International Settlements (BIS) for any interest or capital gains from
its investments in G-Secs.
This will ensure stable systematic inflow
of durable, patient foreign capital and long-term investors such as pension funds,
insurance companies, and Sovereign wealth funds (SWFs).
Taken together, these reforms aim to reduce
operational complexities, simplify market access, and provide a more seamless investment
experience comparable with leading international financial markets. These measures
are expected to expand the investor base for Indian equities and Government Securities
and encourage wider participation from global investors seeking exposure to one
of the world's fastest-growing major economies.
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