India weighs tax cuts on foreign bond investments amid push for capital inflows

India is considering a significant reduction in the taxes paid by foreign investors on the nation’s bonds, as authorities seek to align policies with global norms and attract capital inflows, according to people familiar with the matter.

The Reserve Bank of India

recommended the move, which is being seriously considered by the Finance Ministry, the people said, requesting anonymity because the discussions are private. Deliberations on easing the tax burden have gathered pace as authorities attempt to curb the rupee’s depreciation, they added.

The Finance Ministry and the Reserve Bank of India did not respond to emails seeking comment.

Policymakers have so far taken defensive measures to stem the currency’s slide, including limiting the size of trading positions. Attracting capital inflows has become increasingly important to help finance a larger import bill as the Iran war pushes up oil prices.

The rupee has been Asia’s worst-performing currency so far in 2026, falling more than 6% against the dollar.

Overseas investors are required to pay both short-term and long-term capital gains taxes, depending on their jurisdiction. India has agreements with dozens of countries that allow some investors to benefit from lower tax rates.

Interest income from coupon payments is taxed at around 20%. Foreign investors previously paid just 5% tax on interest income, but that concession ended in 2023.

Foreign investors have been vocal about the high tax burden they face in India compared with other emerging markets such as Indonesia, Malaysia, Mexico and South Africa. Foreign holdings account for just 3% of the $1.3 trillion market, despite Indian government bonds now being included in widely followed indices from JPMorgan Chase & Co. and FTSE Russell.

In the longer term, aligning taxation policies with global standards is seen as supporting Prime Minister Narendra Modi’s goal of making India a developed nation by 2047.