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No Tax Tangle, FPIs Keen to Move G-Sec Money Next Day

No Tax Tangle, FPIs Keen to Move G-Sec Money Next Day

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News›Markets›Stocks›News›No tax tangle, FPIs keen to move G-Sec money next day The Economic

Times daily newspaper is available online now. Read Today's Paper No tax tangle, FPIs keen to move G-Sec money next

daySECTIONSNo tax tangle, FPIs keen to move G-Sec money next dayBy Sugata Ghosh, ET BureauLast Updated: Sep 05, 2026,

10:13:00 AM ISTRate StoryFollow usShareFont SizeAbcSmallAbcMediumAbcLargeSavePrintCommentSynopsisForeign investors are

advocating for expedited remittance processes after the Indian government introduced tax exemptions on bonds. They are

calling on regulators and banks to enhance the speed of money transfers. This initiative aims to streamline remittance

operations and mitigate settlement delays, as the exemption abolishes withholding taxes on interest and capital gains

from these investments, improving market efficiency for foreign portfolio investors.Listen to this article in summarized

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Investment IdeasAd-lite Experience SubscriptionETMarkets.comOffshore bond players betting on Indian government bonds are

figuring out a way to move money around faster.Months after the sweeping tax reliefs announced this year, foreign

portfolio investors (FPIs) are nudging the regulator and banks to give them the flexibility to remit funds a day after

bonds are sold.Secondary market transactions in government securities (G-Secs) are settled on the next business day.

But, remittances were typically possible a day after the settlement as custodian banks handling FPIs' securities and

funds waited for remittance letters from accounting firms stating the tax that must be withheld before funds could leave

the country.An Income-tax (amendment) ordinance by the government on June 5, 2026, completely exempted FPIs from taxes

on G-Secs with effect from April 1, 2026. With this withholding tax or income tax on interest earned from holding G-Secs

and tax on capital gains or profits from sale, transfer, exchange, or redemption were scrapped.ET BureauWith taxes gone,

overseas funds want to do away with the procedure of obtaining remittance letter for every transaction. At a meeting

with RBI officials on Thursday, the matter was discussed by fund representatives, banks and accounting firms, two

persons told ET.Live EventsIt was suggested that instead of a letter backing every deal, a quarterly or annual letter

from the accountant stating that no tax has to be paid should enable custodians to allow remittance."The tax exemption

does more than removing tax cost - it simplifies remittance process. With no daily remittance letter needed, FPIs can

book forex ahead of time and remit sale proceeds faster, cutting down on timing risk and settlement friction. It makes

India's G-Sec market more efficient for foreign investors, even as daily remittance letters remain for other asset

classes," said Tejas Desai, partner, EY.Overseas bond investors have shown a resilience that's in sharp contrast to

their equity counterparts. Net FPI G-Sec purchases were $7.3 bn in 2025 and $9.8 bn since January 2026. Compared with

this, FPIs net sold $18.8 bn and $23.05 bn of equity during the corresponding periods.For outward remittance the very

next day, banks have to buy dollars in 'cash deal' where settlement happens the same day. "If a trade happens on Monday,

a bank has to buy dollars Tuesday morning, hours before G-Sec sale proceeds are credited to FPI's bank account late

afternoon. Dollars bought wouldn't be remitted till FPI receives money and remittance letter is available. This

shouldn't be a problem as trades are settled through Clearing Corp acting as counterparty," said a banker.Though there's

no tax, a letter would be required for FPIs to file tax returns -- more so, several funds trade bonds and equities where

dividend and capital gains are taxed."Before the 2016 amendment in the India-Mauritius Double Tax Avoidance Agreement,

CAs issued annual or six-monthly or quarterly certificates to custodians for remittance of proceeds from sale of

equities which were fully tax-exempt till March 2017," said Bhavesh Gandhi, co-founder of Incorp Advisory

Services.Interest flows on G-Secs are accounted for both buyer and seller. On G-secs interest is paid half-yearly. Say,

a 6% interest is split, with 3% paid in June and balance 3% in December. While an institution which buys G-Sec on April

1 will receive 3% in end-June, it must pay the FPI seller an accrued interest of 2% (i.e, half percentage point per

month) for holding the bond from January to March.Add as a Reliable and Trusted News Source Add Now! (You can now

subscribe to our ETMarkets WhatsApp channel)Read More News onForeign Portfolio InvestorsRBIRemittance Process for

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