New Delhi, June 6 : The latest financial reforms aim to attract stable long-term foreign capital, deepen the G-Sec market, and strengthen India's debt market by broadening and diversifying the investor base, an official fact-sheet said on Saturday.

Greater foreign participation will provide an additional source of funding for infrastructure, manufacturing, urban development, climate initiatives, and other national priorities.

It will also improve market liquidity and price discovery, support the development of a smoother yield curve, reduce government borrowing costs, strengthen financial market benchmarks, and enhance the transmission of monetary policy across the economy.

To deepen the capital market, the government has introduced a series of reforms to increase Foreign Portfolio Investor (FPI) participation in Government Securities (G-Secs).

Key measures include tax exemptions on interest income, long-term capital gains (LTCG) and short-term capital gains (STCG), expansion of specified securities under the Fully Accessible Route (FAR), and streamlined investment norms.

Prior to latest reforms, FIIs, including SEBI-registered Foreign Portfolio Investors (FPIs), were taxed under Section 210 of the Income-tax Act, 2025. Any income earned from investments in Government Securities (G-Secs) was subject to tax.

Recognising the importance of a competitive tax framework in attracting global capital, the Government has introduced a tax exemption for FPIs/FIIs investing in G-Secs.

Under the new regime, FPIs/FIIs will be exempt from interest income earned from G-Secs; and capital gains arising from the sale, transfer, exchange or redemption of G-Secs.

The exemption will apply to income arising on or after April 1, 2026. The Income-tax (Amendment) Ordinance, 2026 inserted specific provisions granting this exemption to FIIs investing in G-Secs, according to the official statement.

Moreover, the government has now expanded the list of securities eligible under the FAR, broadening investment opportunities for foreign investors across a wider range of G-Secs.

The FAR framework will now include new issuances of 15-year Government Securities; new issuances of 30-year Government Securities; new issuances of 40-year Government Securities; and Sovereign Green Bonds (SGrBs) issued in FAR-eligible tenors.

The expansion is expected to broaden investment opportunities across the maturity spectrum and encourage greater participation in long-duration sovereign debt instruments.

To facilitate greater FPI participation in G-Secs, the government has removed short-term investment limit; concentration limit; and security-wise investment limit.

However, the overall investment limits remain unchanged at 6 per cent of the outstanding stock of Central Government Securities; and 2 per cent of the outstanding stock of State Government Securities (SGSs).

Further, the existing 'General' and 'Long-Term' categories for FPI investments will be merged into a single investment limit for Government Securities and State Government Securities, respectively.

/IANS