The Indian government has decided to remove the capital gains tax for foreign portfolio investors (FPIs) to attract foreign money. For the investor who buys the government bond, the capital tax will be removed.
According to the sources, the new tax relief will officially take effect after the President’s formal assent. The new tax was approved by a special ordinance amending the Income Tax Act by the Union Minister, who was led by Prime Minister Narendra Modi.
This decision is due to economic pressure from global factors, which include the high international crude oil prices driven by the ongoing conflict with Iran. This conflict has caused the loss of foreign capital, and around ₹2.47 lakh crore have been pulled out by the foreign investors from Indian stock markets. This is double the amount withdrawn in 2025.
This heavy pressure has affected the Indian rupee, which fell down to ₹96.965 against the US dollar on May 20. The tax-free investment will encourage fresh inflows of foreign dollars into government debt securities (G-Secs), which will help in stabilising the economy and strengthening the rupee.
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What is the Expected Impact?
The lower tax will encourage the foreign investors to invest more in the Indian global market. Currently, the foreign investors are paying 12.5% long term capital gains tax on bonds held for 12 months. But the new tax proposal will remove this tax completely from the investment. Also, according to the sources, the government is planning to remove the 20% tax for the foreign investors that was earned by the interest from government bonds.
Economists point out that if overseas demand for Indian bonds rises, it will lower government borrowing costs. It will also bring much-needed liquidity into the country’s debt market, providing a stable financial cushion against ongoing global uncertainties.
