India plans to remove capital gains tax on foreign portfolio investors (FPIs) investing in government securities and is also considering abolishing the withholding tax on interest, moves aimed at drawing more overseas capital into the country’s debt market and supporting the rupee, according to a report in The Economic Times. The proposal was approved by the Union Cabinet at a meeting on June 3, 2026, and could be implemented quickly through an ordinance amending the Income Tax Act, the report said.
Under the current tax framework, foreign investors face a 12.5% long-term capital gains tax on listed shares and bonds held for more than 12 months, and a 20% withholding tax on interest income from government bonds. Withholding tax is taken at source on interest payments and reduces the net yield received by overseas buyers; removing it would raise the after-tax return for foreign holders of rupee debt.
Officials and market participants say the changes would be among the most significant incentives for foreign investors since Indian government bonds were included in major global bond indices, a development that has already helped boost international flows into the sovereign debt market. So far this year foreign investors have remained net buyers of Indian government securities — investing a net $1.4 billion — while equities have seen nearly $28 billion in foreign outflows, underscoring a shift toward perceived stability in fixed income amid global volatility.
Analysts argue India’s existing tax structure has left its bond market less competitive compared with some emerging peers; removing capital gains and interest withholding taxes could narrow that gap and attract long-term institutional investors such as sovereign wealth funds, pension funds and global asset managers. The measures would complement other government efforts to deepen domestic capital markets and widen participation in rupee-denominated assets.
If implemented, the proposal could strengthen foreign demand for government securities, diversify the investor base and help support capital inflows — though the final form and timing of any change will depend on legislative or ordinance procedures and further government decisions. The Economic Times and agency reports provided the details.
Original Source: https://www.firstpost.com/business/india-capital-gains-tax-waiver-foreign-investors-government-bonds-fpi-debt-market-14018621.html
Category: India
Tags:
Publish Date: 2026-06-04 08:39:00
