India Plans to Scrap Capital Gains Tax on Foreign Investment in Government Bonds
India intends to eliminate capital gains tax on foreign portfolio investments in government securities to attract more foreign capital. This strategic move aims to bolster the rupee, which has depreciated over 5% this year due to high oil prices and foreign equity outflows. Currently, foreign investors face a 12.5% long-term capital gains tax on bonds held over 12 months, and a 20% withholding tax on interest earned in government bonds may also be removed. While not a definitive solution, this tax easing is expected to positively influence foreign inflows into the Indian bond market in the medium term.
Key Points
- India plans to remove capital gains tax for foreign investors in government securities.
- The measure aims to attract foreign capital and support the Indian rupee.
- Foreign investors currently pay 12.5% long-term capital gains tax on bonds.
- A 20% withholding tax on interest from government bonds may also be abolished.
- This policy change is expected to boost foreign inflows into the bond market in the medium term.
Exam Facts
- Current long-term capital gains tax (foreign investors, bonds >12 months): 12.5%.
- Current withholding tax on interest (government bonds): 20%.
- Rupee depreciation (this year): Over 5%.
- Impact: Expected to boost foreign inflows into the bond market.
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