Tax Breaks Pay Off: Foreign Investors Pour ₹17,000 Crore Into Indian Bonds in June, Best Month in 16 Months

After the government scrapped capital gains and withholding tax on bond investments, foreign investors put roughly $1.84 billion into Indian government bonds in June 2026, the biggest monthly inflow in 16 months.

Foreign investors who had kept their distance from India's bond market for months are back, and their return has been swift enough that a large sum has flowed in within just a handful of trading sessions. Foreign institutional investors (FII) have put close to ₹17,000 crore into Indian government bonds during June. A major tax decision by the government, combined with easier global conditions, is being seen as the main reason behind this turnaround.

 

The Numbers Behind the Comeback
 In dollar terms, foreign investors have so far channelled around $1.84 billion, roughly ₹17,000 crore, into Indian bonds in June 2026. That marks the largest single-month inflow in the past 16 months. The last time buying touched this scale was in March 2025, when foreign investors committed about $3.69 billion.

 To grasp how striking this surge is, it helps to look at the dry spell that preceded it. Across the entire financial year 2025-26, foreign investors bought just $2.07 billion worth of bonds in total. The slowdown was even sharper at the start of the current financial year, with inflows in April and May together amounting to only $130 million. Against that backdrop, June's $1.84 billion in one go signals a real shift in sentiment.

 

How the Tax Cut Changed the Math
 The single biggest driver of this rapid return is a decision the central government took on June 6. It abolished both the long-term and short-term capital gains tax levied on foreign investment in government bonds. Alongside that, the withholding tax charged on interest income was also removed.

 The scale of this relief becomes clear when you look at the old rates. Earlier, foreign investors had to pay 12.5 percent on long-term capital gains, 30 percent on short-term gains, and around 20 percent on interest income. Wiping all of these out makes Indian bonds far more attractive to overseas capital, because the net return now landing in investors' hands is considerably better than before.

 

A Clear Boost for the Rupee and Yields
 An inflow of this size has not stayed confined to the bond market alone; it has lifted the Indian currency as well. During June, the rupee strengthened by about 1 percent against the dollar. On the other side, the 10-year government bond yield eased from 7 percent to 6.87 percent. A falling yield is welcome news for the government, since it lowers the cost of raising debt and lends support to overall financial stability.

 

Even Bigger Inflows Expected Ahead
 Market experts believe this is only the beginning. They estimate that, on the strength of the tax exemptions and other reforms, Indian bonds could attract anywhere between $45 billion and $50 billion in foreign investment over the next two years. The Reserve Bank has helped smooth this path too, widening the door for overseas investors by bringing more government securities under the FAR (Fully Accessible Route).

What this means for you
What this means for the ordinary reader and investor:

• Across India: Heavy foreign inflows and the 10-year yield easing from 7 percent to 6.87 percent lower the government's cost of borrowing, which can eventually feed through to loan interest rates and overall financial stability.
• For investors: The rupee strengthening about 1 percent can ease the cost of imports and of travel or studying abroad, while the environment is turning more favourable for those holding debt funds and bonds.

Questions & Answers

1. How much did foreign investors put into Indian bonds in June 2026?
So far in June 2026, foreign investors have invested around $1.84 billion, or roughly ₹17,000 crore, the largest monthly figure in 16 months.

2. What did the government decide on June 6?
The government scrapped both long-term and short-term capital gains tax on foreign investment in government bonds, along with the withholding tax on interest income.

3. How much tax did foreign investors pay earlier?
Previously they paid 12.5 percent on long-term capital gains, 30 percent on short-term gains, and around 20 percent on interest income.

4. How much foreign investment is expected going forward?
Market experts estimate that Indian bonds could attract between $45 billion and $50 billion in foreign investment over the next two years.

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