Govt Removes Capital Gains Tax On Government Bonds For Foreign Investors; Ordinance Issued

The Centre has decided to remove capital gains tax on investments made by foreign portfolio investors (FPIs) in Indian government securities (G-Secs) of all tenures, a move aimed at attracting overseas capital and boosting demand for sovereign bonds. The decision was approved by the Union Cabinet, headed by Prime Minister Narendra Modi, to implement this through an ordinance amending tax provisions.

The tax relief comes at a time when policymakers are looking to encourage foreign inflows into the debt market and support the rupee, which has faced pressure from rising crude oil prices and foreign fund outflows from equities.

FPIs have pulled out nearly Rs 2.2 lakh crore this year, compared with nearly Rs 1.6 lakh crore.

What Changes for Foreign Investors?

Currently, foreign investors

are subject to a 12.5% long-term capital gains tax on listed bonds held for more than 12 months. Under the proposed change, capital gains arising from investments in Indian government securities will no longer be taxed for foreign instituational investors.

The government has also removed the 20% withholding tax on interest income earned by foreign investors from government bonds.