India set to introduce tax cuts for foreign bond buyers
India plans to attract foreign investment: The central government has taken a major step to promote foreign capital inflows amid the Middle East crisis. The move will be a part of efforts to attract greater overseas investment.
Prime Minister Narendra Modi led Union Cabinet approved an ordinance amending the Income Tax Act on Wednesday. The ordinance, as per sources, will completely eliminate capital gains tax on investments made by foreign portfolio investors (FPIs) in Indian government securities (G-secs). It will be implemented after Presidential approval.
Currently, foreign investors pay a 12.5 per cent long-term capital gains (LTCG) tax on bonds and listed shares held for more than 12 months. In addition, they also pay a 20 per cent withholding tax on interest earned on government bonds.
Significantly, the government eliminated the 5 per cent concessional rate on this in 2023. However, this year, foreign investors have pulled out a massive Rs 2.5 lakh crore from the Indian stock markets. Thus, to prevent further FII (foreign institutional investors) and FPI selling, there had been calls for tax cuts.
According to sources, more significant steps to shore up India’s forex and attract global investments are likely to be taken in the future. The decision comes days after Union Finance Minister Nirmala Sitharaman said that she is willing to listen to investors on what they have to say about reducing taxes on long-term and short-term capital gains.
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