Form 173A: New G-Sec Exemption Disclosure for FIIs & BIS (Seventh Amendment Rules, 2026)

Two tax notifications landed on the same day — 19 October 2026 — and both concern government-securities investors, so the headlines have been blurring them together. They are different things for different audiences. One is a new disclosure form for big foreign investors in Indian government bonds. The other is a TDS exemption on interest from a specific rupee bond issued by the New Development Bank. For the broader picture of foreign-asset reporting rules, see our FAST-DS foreign-assets disclosure scheme guide, and for everything TDS under the new law, our Section 393 TDS guide.

Form 173A: the new disclosure form for G-sec exemptions

The Ministry of Finance’s notification of 19 October 2026 brings into force the Income-tax (Seventh Amendment) Rules, 2026, effective from the date of publication in the Official Gazette. The centrepiece: Rule 281A, which says taxpayers claiming exemption under Schedule IV, Table entries 13D and 13E of the Income-tax Act, 2025 must furnish the prescribed information in Form 173A.

Here’s the catch — this is not for you and me. Entry 13D covers foreign institutional investors (FIIs), including foreign portfolio investors registered with SEBI; entry 13E covers the Bank for International Settlements (BIS). The exemptions themselves cover interest income from government securities and capital gains arising from their sale, exchange or transfer. Ordinary resident investors get nothing new here; do not claim this exemption on your return.

What Form 173A actually asks for

The form is a full disclosure of the G-sec position, and it goes well beyond identity details. As reported by Business Standard (20 October 2026), investors must disclose:

• Identity and residence: name, country of residence, address, PAN, relevant tax year, email and contact number — plus the tax identification number in the country of residence and the SEBI registration number, where applicable.
• Security-level detail: the ISIN, type of security (Treasury Bills, fixed-rate bonds, floating-rate bonds, State Development Loans and others), tenor, and total value of holdings as of 1 April.
• Transactions during the year: value of securities purchased, sale consideration of securities sold, and total value of holdings as of 31 March.
• Income and gains: gross interest received or accrued during the tax year, and capital gains earned during the year.

What changed, and why it is retrospective

The Financial Express’s background reporting (20 October 2026) traces this to a 6 June 2026 notification that launched a package of initiatives to draw foreign portfolio investors into government securities: expansion of specified securities under the Fully Accessible Route (FAR), simplified investment standards, and tax exemptions on interest, long-term and short-term capital gains. Before these exemptions, the tax bill on foreign investors holding or trading G-secs was heavy — interest income taxed at 20% for FIIs/FPIs and short-term capital gains at 30%, per the reports.

The Hindu BusinessLine (20 October 2026) reports the new regime is retrospective from 1 April — replacing the old treatment (which it describes as 30% STCG and 12.5% LTCG on sovereign securities) with the exemption-plus-disclosure framework.

The other 19 October notification: NDB’s Maharaja Bonds and zero TDS

The second development is a separate Income Tax Department notification, also effective on its 19 October 2026 Gazette publication: “no deduction of tax shall be made under section 393(1) of the Income Tax Act on payment in the nature of interest, made by the New Development Bank to such person being holder of the Maharaja INR Bonds issued by the New Development Bank during the tax year 2026-27 and subsequent tax years.”

The two operative words: “holder” means a resident or a Foreign Institutional Investor, and the bonds are the rupee-denominated Maharaja INR Bonds the New Development Bank plans to issue in India.

Maharaja Bonds vs Masala Bonds — not the same thing

The names invite confusion, so here is the distinction as explained in the BusinessLine report: a Maharaja Bond is an onshore rupee-denominated debt instrument — issued inside India, in rupees. A Masala Bond is issued by Indian entities in the international market but denominated in rupees.

The New Development Bank — the BRICS multilateral lender — plans to channel $7.5 billion into India over five years, including a planned $2.5 billion-equivalent rupee bond programme (about ₹25,000 crore), with support from the Government of India and the RBI.

What should an ordinary Indian investor do?

Honestly? Mostly nothing — except not get misled. These notifications do not create a new tax-free investment for resident retail investors, and claiming an exemption you are not eligible for is the fastest route to a notice. Track how the new law treats your own investments on our income-tax hub, and note two practical takeaways:

• Do not claim entry 13D/13E exemptions. They belong to FIIs and the BIS. If you are an NRI or resident individual with overseas holdings, your disclosure universe is FATCA/AIS and the FAST-DS scheme — not Form 173A.
• Watch the G-sec yield story. More foreign money flowing into government securities — encouraged by tax exemptions and zero-TDS structures — is how the government keeps borrowing costs down. That eventually shows up in the small-savings and bank-FD rate environment everyone else lives in.

FAQs

What is Form 173A?

Form 173A is the new disclosure form introduced by Rule 281A of the Income-tax (Seventh Amendment) Rules, 2026 (notified 19 October 2026). It must be furnished by taxpayers claiming exemption on G-sec interest and capital gains under Schedule IV entries 13D and 13E of the Income-tax Act, 2025.

Who can use the Form 173A exemption?

Only foreign institutional investors (entry 13D) and the Bank for International Settlements (entry 13E). The reports are explicit: the exemptions are not available to ordinary investors.

Is the interest on NDB’s Maharaja Bonds tax-free?

The notification says no TDS shall be deducted under section 393(1) on interest paid to resident or FII holders of the Maharaja INR Bonds issued from TY 2026-27. That is a zero-deduction-at-source notification; the Bond-issuing bank must furnish information. It is not a blanket “tax-free income” certificate for every investor — read the notification’s scope before acting.

When do these rules take effect?

Both the Seventh Amendment Rules and the Maharaja Bond TDS notification came into force on their 19 October 2026 publication in the Official Gazette. The G-sec exemption framework is reported as retrospective from 1 April.

Where do these fit with the new Income-tax Act, 2025?

Both are creatures of the new law: the exemptions sit in Schedule IV of the Income-tax Act, 2025, and the TDS provision cited is section 393(1) of that Act. Old-Act section numbers appear only as historical context in the underlying reports.

Sources

• Income-tax (Seventh Amendment) Rules, 2026 — Ministry of Finance notification, published in the Official Gazette on 19 October 2026 (introduces Rule 281A and Form 173A; exemptions under Schedule IV, Table entries 13D and 13E of the Income-tax Act, 2025).
• Business Standard — “CBDT notifies new form for tax exemption claims on govt securities” (20 October 2026): Form 173A fields (ISIN, tenor, values as of 1 April/31 March, interest, gains); 13D = FIIs, 13E = BIS; exemptions not available to ordinary investors.
• Asianet Newsable — “CBDT mandates Form 173A for certain income tax exemptions on G-secs” (20 October 2026): form details and rule background.
• The Hindu BusinessLine (Shishir Sinha) — “Resident Indians, FIIs to get income tax exemption on NDB’s Maharaja Bonds” (20 October 2026): no TDS under section 393(1) for resident/FII holders of Maharaja INR Bonds (TY 2026-27 onwards); notification effective 19 October 2026; NDB’s $7.5bn India plan and ₹25,000 crore rupee bond programme; retrospective-from-1-April framing of the G-sec exemption regime; 2014 IFC Maharaja Bond precedent.
• Financial Express — “Government bonds: New tax exemption rules kick in” (20 October 2026): 6 June 2026 FPI-initiative notification (FAR expansion, exemptions); prior tax treatment of foreign investors on G-secs (20% interest tax, 30% STCG).