Indian government bonds via the FAR route — how foreign investors buy G-Secs after index inclusion

For two decades, foreign access to Indian government bonds was rationed. A foreign investor could buy G-Secs only inside tight, oversubscribed quotas, and the paperwork rarely justified the position size you were allowed. That changed with the Fully Accessible Route (FAR) — a category of specified Indian government securities thrown open to non-residents with no investment ceiling at all. And once a quota-free, index-eligible bond market existed, the global bond benchmarks came calling: India's inclusion in the JPMorgan and FTSE Russell emerging-market government bond indices turned a niche route into a multi-billion-dollar inflow channel.

This guide is for the foreign fixed-income investor looking into India. It explains what the FAR actually is, which bonds qualify, how the index inclusions are phased and weighted, the tax treatment of coupons and capital gains (the part that most affects your net yield), and the practical and macro factors — rupee risk, liquidity, the recent withholding-tax debate — that should shape the decision. If your interest is equities rather than bonds, start instead with the FPI route or GIFT City.

What the FAR is

The Fully Accessible Route was introduced by the RBI in April 2020 as a deliberately simple idea: designate a list of specific Indian government securities as fully open to non-residents, with no quantitative cap. Before the FAR, foreign investment in Indian debt ran through limit-based frameworks — the Medium Term Framework and its sub-limits — where you competed for a slice of a fixed quota. The FAR removed the ceiling entirely for the securities on its list.

That "no cap" feature is precisely what global index providers require. A bond market that rations foreign access cannot be cleanly tracked by a passive index, because an index fund must be able to buy index-weight exposure on demand. By creating an uncapped channel, India made its government bonds index-eligible for the first time — which is what set up everything that followed.

Mechanically, a foreign investor accesses FAR securities through the same broad architecture as other foreign debt investment: registration as an FPI, an Indian custodian, and the depository/settlement chain. The FAR is not a separate brokerage product you sign up for; it is a designation on the bonds themselves that exempts them from the foreign-investment limits that otherwise apply. You come in as an FPI, and the FAR bonds you buy do not count against any quota.

Which bonds qualify

The FAR list is curated by the RBI and consists of specified Indian government securities — primarily benchmark-tenor central government bonds (G-Secs). When JPMorgan assessed India for index inclusion, it identified a large universe of FAR-eligible bonds with a combined notional value in the hundreds of billions of dollars — roughly two dozen securities anchoring the inclusion.

The list is not static. The RBI manages which tenors are designated, and it has at times excluded new issuance of certain very long tenors (for example, removing some new 14-year and 30-year issuance from FAR going forward) while leaving existing specified securities in those tenors accessible in the secondary market. The practical takeaway for a foreign investor: do not assume every Indian government bond is FAR-eligible. Check the current RBI-designated list before you build a position, because the eligible set evolves and the index-tracked subset is what matters for liquidity.

The index inclusions — the inflow story

This is the part that turned the FAR from a quiet reform into a market event. Two major index inclusions matter:

JPMorgan GBI-EM Global Diversified

India was added to JPMorgan's flagship emerging-market local-currency government bond index — the GBI-EM Global Diversified — starting 28 June 2024. The inclusion was phased in over ten months, beginning at a 1% weight and rising by one percentage point each month to reach the index's maximum 10% cap by 31 March 2025. That 10% cap puts India alongside the largest constituents (China, Indonesia, Mexico) in the index. Estimates at the time put the passive inflow into FAR bonds from this single inclusion in the region of roughly $20-25 billion.

FTSE Russell Emerging Markets Government Bond Index

FTSE Russell followed, announcing in October 2024 that it would add Indian government bonds to its Emerging Markets Government Bond Index (EMGBI), with the inclusion effective from September 2025 and phased in monthly over six equal tranches, completing in early 2026. On a market-value-weighted basis, Indian securities represent roughly 9.35% of that index, making India the second-largest constituent after China. As of this writing in early 2026 both major inclusions — JPMorgan and FTSE Russell — have completed their phase-in.

Index	Inclusion start	Phase-in	Target weight
JPMorgan GBI-EM Global Diversified	June 2024	10 months	10% (cap)
FTSE Russell EMGBI	September 2025	6 months (completed early 2026)	~9.35%

Why this matters even if you are an active rather than passive investor: index inclusion creates a structural, price-insensitive buyer of FAR bonds. Passive funds tracking these indices must hold India at index weight, which adds persistent demand, generally compresses yields, and improves secondary-market liquidity for the index-tracked bonds. It also ties Indian bond performance more tightly to global EM debt flows — a double-edged sword, since the same flows that arrive on inclusion can reverse on a risk-off move.

How FAR bonds are taxed

Tax is where the net yield is won or lost, and the Indian bond regime is less generous to foreigners than the equity side in one important respect: the concessional rate is gone.

Interest (coupon) income

Coupon income on Indian government bonds paid to a non-resident is currently taxed at around 20% (plus applicable surcharge and cess), subject to treaty relief. The history matters here: until 2023, certain FPI debt investments enjoyed a concessional 5% withholding rate on interest. That concessional regime lapsed in 2023, which is why the headline rate stepped up to the ~20% level. For a foreign investor whose return is coupon-driven, this is the single biggest drag on net yield, and it is the reason the after-tax pickup from Indian bonds is less dramatic than the gross yield suggests.

As of mid-2026, this remains an active policy area. The RBI has reportedly recommended easing the tax burden on foreign bond investors to keep India competitive with other emerging markets, and the Finance Ministry has been weighing a reduction in the withholding rate on foreign bond inflows — reportedly back toward the old 5% level. Nothing should be assumed until it is legislated, but a foreign investor sizing a coupon-driven position should track this — a cut back toward the old concessional level would materially change the after-tax case.

Capital gains

If you sell a FAR bond before maturity at a gain, that gain is taxable in India under the capital-gains rules applicable to debt instruments for non-residents, again subject to your home-country treaty. The treatment differs from listed equity (the 12.5%/20% equity rates do not simply carry over to bonds), so model the debt-specific treatment for your holding period and domicile rather than assuming the equity numbers.

Treaty relief and the TRC

As on the equity side, your effective rate depends on the DTAA between your country and India, and claiming the treaty rate requires lodging a valid Tax Residency Certificate and declaration with your custodian. Without it, the custodian withholds at the full domestic rate. Get this in place before your first coupon, not after.

Income type	Headline treatment (non-resident)	Notes
Coupon interest	~20% + surcharge/cess	Concessional 5% rate lapsed in 2023; a cut back toward 5% under discussion as of mid-2026
Capital gains on sale	Debt-specific non-resident rules	Treaty relief possible; differs from equity rates
Treaty relief	Depends on home-country DTAA	Requires valid TRC lodged with custodian

The factors that actually drive the decision

Beyond tax, four things should shape a foreign investor's view of Indian G-Secs:

• Currency risk dominates. FAR bonds are rupee-denominated. Your total return is the rupee yield minus rupee depreciation against your home currency. The INR has a long-run tendency to depreciate against the USD, and historically that depreciation has eaten a meaningful chunk of the nominal yield pickup. Unhedged, you are taking a rupee view as much as a rate view; hedged, the hedging cost claws back part of the carry. Decide which exposure you actually want before buying.
• Yield pickup vs developed markets. Indian G-Sec yields have generally offered a real and nominal pickup over developed-market sovereign bonds, which — alongside index inclusion — is the core of the bull case. Whether that pickup survives currency depreciation and the ~20% coupon tax is the question to model.
• Liquidity is concentrated in the index-tracked bonds. The benchmark, FAR-designated, index-included securities trade with reasonable depth; off-the-run and non-FAR bonds do not. Stay in the liquid, index-tracked set unless you have a specific reason not to.
• Flow risk cuts both ways. Index inclusion brought structural buying, but it also makes Indian bonds more sensitive to global EM debt sentiment. The same passive flows that supported the market on inclusion can reverse in a risk-off episode, and FAR's open access means there is no quota friction slowing an exit.

How a foreign investor actually buys FAR bonds

The route is the institutional one:

1. Register as an FPI. FAR is accessed through the FPI framework — appoint a Designated Depository Participant, complete registration, and set up the custodian and settlement chain.
2. Confirm the FAR-eligible, index-tracked set. Check the current RBI-designated FAR list and focus on the liquid, index-included benchmark bonds.
3. Lodge your Tax Residency Certificate. Without it, coupon withholding defaults to the full domestic rate rather than your treaty rate.
4. Decide your currency stance. Hedged or unhedged is a first-order decision for a rupee-denominated bond, not an afterthought.
5. Settle and hold via the custodian. As with FPI equities, the custodian handles settlement, coupon collection, tax withholding, and reporting — and squares the tax before any money is repatriated.

For an investor who does not want the FPI machinery, the indirect routes are an EM local-currency bond fund or ETF that tracks the JPMorgan or FTSE index (which now embeds India at index weight) bought in your home market — exposure to Indian G-Secs without the direct FAR onboarding.

Direct FAR vs index funds vs GIFT City — choosing your wrapper

The way you hold Indian government bonds changes both your tax exposure and your operational burden, so it is worth laying the three realistic wrappers side by side before committing.

Wrapper	What you own	Tax exposure	Best for
Direct FAR via FPI	Specific G-Secs in an Indian custody account	Indian coupon and capital-gains tax (treaty relief possible)	Institutions wanting precise duration and issue selection
EM bond index fund / ETF in home market	Units of a home-domiciled fund holding India at index weight	Taxed in your home jurisdiction; India tax handled inside the fund	Investors wanting passive India weight without onboarding
GIFT City IFSC debt instruments	IFSC-listed debt or fund units	Non-resident IFSC concessions may apply	Non-residents prioritising tax efficiency and USD settlement

The trade-off is the familiar one between control and friction. Direct FAR gives an institution the ability to pick exact tenors and manage duration on the curve, but it carries the full FPI onboarding, Indian-source tax, and custodian dependency. An index fund in your home market is operationally trivial — you buy it like any other ETF — but you accept index-weight India rather than a tailored position, and you give up control over which bonds you hold. The GIFT City debt route can offer a cleaner non-resident tax envelope and dollar settlement, at the cost of a narrower instrument set. For most foreign investors who simply want India's yield and index-inclusion tailwind as part of a diversified EM book, the index-fund route is the pragmatic default; direct FAR is for those who genuinely need issue-level control.

What index inclusion does and does not change for you

It is easy to read the inclusion headlines and assume the work is done. It is not. Index inclusion changes the demand structure of the market — it does not change the tax you pay or the currency you carry.

What inclusion genuinely improves: secondary-market liquidity in the benchmark bonds, the depth of the bid you can hit when you exit, and the structural floor under demand from passive trackers. Those are real and durable benefits, and they are concentrated precisely in the FAR-designated, index-tracked securities you should be holding anyway.

What inclusion does not do: it does not reduce the ~20% coupon withholding, it does not hedge your rupee exposure, and it does not insulate you from a global EM risk-off move. In fact, by tying Indian bonds more tightly to global EM debt flows, inclusion can increase short-term volatility around risk events, because the marginal buyer and seller is now a global allocator reacting to EM sentiment rather than a domestic institution reacting to Indian fundamentals. A foreign investor should treat the inclusion as a liquidity-and-demand positive layered on top of an unchanged tax-and-currency reality — not as a reason to relax the after-tax, after-currency analysis.

A worked way to think about net yield

Because the gross yield on Indian G-Secs looks attractive next to developed-market sovereigns, the discipline is to walk it down to what you actually keep. The rough sequence for an unhedged foreign holder:

1. Start with the gross rupee yield on the benchmark FAR bond.
2. Subtract the coupon tax — roughly 20% (plus surcharge and cess) of the coupon, before any treaty relief, which trims the effective yield meaningfully.
3. Subtract expected rupee depreciation against your home currency over your holding period — historically a persistent drag against the USD.
4. What remains is your expected real pickup over a comparable home-currency government bond.

For a hedged holder, replace step 3 with the hedging cost, which tends to absorb a large share of the rate differential — sometimes most of it. The point of the exercise is not the precise number but the realisation that the gross yield advantage and the net yield advantage can be very different animals, and that the coupon tax and the currency are the two variables doing the damage. This is exactly the kind of round-trip cost our repatriation cost calculator is built to surface for cross-border positions.

The bottom line for a foreign investor

The FAR is the quota-free door that finally made Indian government bonds investable at scale for foreigners — and the JPMorgan (10% cap, phased to March 2025) and FTSE Russell (~9.35%, phased from September 2025, completed early 2026) inclusions turned that door into a structural inflow channel that compresses yields and deepens liquidity in the index-tracked bonds. The catch is on the after-tax, after-currency side: the concessional 5% coupon rate is gone, leaving roughly 20% withholding (with a cut back toward 5% under active discussion as of mid-2026), and rupee depreciation has historically eroded a real share of the nominal yield pickup.

For a global fixed-income allocator, the practical playbook is: access via FPI, stay in the liquid index-tracked FAR bonds, lodge your treaty paperwork before the first coupon, and make a deliberate decision on currency hedging — because for a rupee bond, the currency call is at least as important as the rate call. If the FPI onboarding is too heavy for your size, an index-tracking EM bond fund in your home market gives you the India weight without the registration. Start from the India market hub, compare the equity doors in our FPI and GIFT City guides, and see the global markets directory for how India's bond access compares to other markets.

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This is general information, not tax, legal, or investment advice. The FAR-eligible securities list, coupon and capital-gains tax treatment, treaty relief, and index-inclusion weights change over time, and a reduction in foreign-bond withholding tax was under active government consideration as of mid-2026. Figures reflect rules and index parameters as understood in mid-2026. Before investing in Indian government bonds, confirm the current RBI FAR designation, the applicable withholding rate, and your treaty position with a qualified Indian tax adviser.