India Lures Global Investors: Scraps Capital Gains Tax on FPIs

In a strategic move, India's Union Cabinet has approved the removal of capital gains tax on government securities for Foreign Portfolio Investors. This ordinance aims to boost foreign investment by enhancing the appeal of India's sovereign debt amid global geopolitical tensions and market uncertainties.

In a significant policy shift aimed at enhancing India's attractiveness as an investment hub, the Union Cabinet, led by Prime Minister Narendra Modi, has approved an ordinance to abolish capital gains tax on Foreign Portfolio Investors (FPIs) investing in government securities. The ordinance seeks to amend the Income Tax Act, effectively fast-tracking this reform without awaiting a parliamentary session.

Currently, foreign investors face a 12.5% Long Term Capital Gains (LTCG) tax on listed shares and bonds held beyond a year. The tax exemption on government securities is projected to enhance the yield allure of Indian sovereign debt for overseas investors, for whom the tax has been a longstanding hindrance.

According to government insiders, this development is part of a broader strategy to attract capital inflows and protect the Indian economy from the ongoing geopolitical unrest in West Asia, which has destabilized global markets and supply chains. By eliminating capital gains levies on government securities, India hopes to intensify foreign capital involvement in its sovereign bond market, potentially stabilizing the rupee and assisting in managing national borrowing expenses.