CBDT notifies Form 173A for government securities: New tax exemption rules for eligible foreign investors
The Central Board of Direct Taxes (CBDT) has made it mandatory for eligible foreign investors and the Bank for International Settlements (BIS) to submit Form 173A to claim income-tax exemptions on interest and capital gains from government securities. The requirement was introduced through the Income-tax (Seventh Amendment) Rules, 2026, notified on 19 October.
The new form lays down the information that eligible investors must furnish to claim exemptions under entries 13D and 13E of Schedule IV of the Income-tax Act, 2025. The amended rules came into force upon publication in the Official Gazette. The exemptions apply to qualifying income from government securities, subject to the conditions prescribed under the Act.
The change does not introduce a tax exemption for all government bond investors. It sets out the reporting requirements for investors seeking specific exemptions under the law.
Who can claim the exemption?
The provisions cover specified foreign institutional investors (FIIs) under entry 13D and the Bank for International Settlements under entry 13E of Schedule IV. The exemptions relate to eligible interest income and capital gains arising from the sale, exchange or transfer of government securities.
For ordinary retail investors who buy government bonds or Treasury Bills, the new form does not create an additional tax benefit. Its requirements concern entities eligible for the specified exemptions.
What information must investors disclose?
Form 173A has two parts, covering basic information about the claimant and details of income earned from government securities.
The first part requires the investor’s name, country of residence, address, Permanent Account Number (PAN), tax year, email address and contact number. It also seeks the tax identification number issued by the investor’s country of residence and the Securities and Exchange Board of India registration number as an FPI or FII, where applicable. The tax identification number and SEBI registration details are optional for BIS.
The second part requires security-wise details of the investments for which the exemption is claimed. These include the International Securities Identification Number (ISIN), type and tenor of the security, and the value of holdings at the beginning and end of the tax year.
Investors must also report the value of securities purchased during the year, sale consideration for securities sold, gross interest received or accrued, and capital gains earned during the relevant tax year. The form lists Treasury Bills, fixed-rate bonds, floating-rate bonds and State Development Loans (SDLs), among other government securities.
The form also requires a declaration confirming the accuracy of the information furnished and compliance with the applicable provisions of Schedule IV. The declaration must be signed by the principal officer.
Why has the reporting requirement been introduced?
The new form provides a prescribed reporting mechanism for claiming the specified exemptions. By requiring details of individual securities, holdings, interest and capital gains, the rules establish the information eligible investors must submit to support their claims.
The exemption provisions apply to qualifying income arising on or after 1 April 2026, subject to the relevant statutory conditions. The introduction of Form 173A specifies the documentation required to claim these benefits; it does not extend them to investors who do not qualify under the relevant entries of Schedule IV.
The notification was issued as part of the Income-tax (Seventh Amendment) Rules, 2026, which amend the Income-tax Rules, 2026, by inserting Rule 281A and Form 173A.
