India removes capital gains tax for foreign investors on June 4, 2026

Global funds are pouring into Indian government bonds at a 15-month high as cooling crude oil prices and aggressive domestic tax reforms reshape the investment landscape. On June 15, 2026, India’s 10-year benchmark government security (G-Sec) yield eased to 6.

88%, driven by a combination of index inclusion milestones and a significant peace deal that has lowered energy costs. This influx follows a pivotal decision by the Union Cabinet on June 4, 2026, to remove capital gains and interest income taxes for foreign institutional investors (FIIs) on government securities.

The appetite for Indian sovereign debt has intensified after the government announced that these tax exemptions for Foreign Portfolio Investors (FPIs) would apply retrospectively from April 1, 2026. This policy shift removes a major fiscal barrier for global asset managers, many of whom are looking for stable returns outside of highly volatile markets.

While Bitcoin price drops over 5% to $67,692.76, leading to massive contract liquidations, the Indian debt market is benefiting from a flight to quality and fiscal predictability.

And it’s not just local policy driving this trend; a broader cooling of international energy prices has reduced the threat of imported inflation for India. Although concerns persist regarding the U.S.

-Iran conflict, a tentative peace deal has allowed oil prices to slide, giving the Reserve Bank of India (RBI) additional breathing room to manage its monetary stance. For a country that imports the vast majority of its crude requirements, lower energy costs directly translate to a stronger rupee and improved market sentiment.

Index inclusion triggers a structural wave of passive capital

The current surge in demand is the culmination of India’s multi-step integration into global financial benchmarks. J.P. Morgan Chase began including Indian Government Bonds (IGBs) in its GBI-EM Global Diversified Index on June 28, 2024. This inclusion is being phased in at 1% per month to reach a 10% maximum weight by March 2025.

Markets estimate this shift alone will generate between $20 billion and $22 billion in passive inflows by the end of the implementation period.

Bloomberg Index Services is following a similar path, having announced the inclusion of India’s Fully Accessible Route (FAR) bonds in its Emerging Market Local Currency Government Index. This process, which started on January 31, 2025, sees a 10% weight increase each month until the 10% country cap is reached in October 2025.

These structural shifts have forced global funds to rebalance their portfolios, ensuring a steady stream of institutional capital into the domestic treasury market.

As international capital flows become more integrated, financial leaders are increasingly forced to adapt to rapid changes in technology and strategy. For example, UBS Asia President Iqbal Khan views AI as the biggest transformation for the banking sector, and a similar modernisation is occurring in how emerging market debt is traded and managed globally.

Tax exemptions and the push for market access

To further boost these inflows, the Indian government and the RBI have expanded the Fully Accessible Route (FAR), which currently includes 23 eligible bonds. As of late 2023, the notional value of these eligible FAR bonds stood at approximately $330 billion.

Recent measures announced in the second week of June 2026 included further tax cuts for overseas investors specifically designed to improve market depth and ease of access.

Active fund managers are increasingly lured by India’s high nominal yields—currently hovering around 7%—which are paired with relatively low volatility. Just as supply chain resiliency is increasingly prioritised in the modern era, global debt investors are prioritising the predictability of the Indian fiscal environment.

Short-covering and foreign-bank buying in late May and early June have further supported bond prices, pushing yields down to their current levels.

Growth outlook for the Indian bond market through 2026

The trajectory for Indian sovereign debt remains upward as the final phases of major index inclusions conclude. Goldman Sachs estimates that total inflows—combining both active and passive strategies—could reach between $30 billion and $40 billion. The completion of the Bloomberg index weight increase in October 2025 will serve as the next major liquidity event for the market.

Investors will now focus on the sustainability of the Middle East peace deal and its continued impact on crude oil prices. If energy costs remain suppressed, the downward pressure on Indian G-Sec yields is likely to persist throughout the remainder of 2026.

For global pension funds and sovereign wealth entities, the combination of tax-free gains and a stable macroeconomic backdrop makes Indian debt a cornerstone of emerging market portfolios.