Move aims to boost foreign inflows into government securities amid $28 billion equity outflows this year.
India will eliminate capital gains tax on foreign portfolio investments in government bonds to attract more overseas funds. The decision, approved at a Cabinet meeting, targets a 12.5% long-term capital gains tax and a 20% withholding tax on interest earnings currently imposed on foreign investors.
Foreign investors have poured $1.4 billion into Indian government debt this year, contrasting with nearly $28 billion withdrawn from equity markets. The tax removal aligns with efforts to stabilize the rupee and support economic growth, which averaged 6.13% annually from 2006 to 2023.
The change is expected to increase demand for Indian government securities, potentially strengthening the INR amid fluctuating dollar demand from importers.