Govt set to scrap Capital Gains Tax on FPI investments in G-Secs to woo foreign investors
By Shailesh Yadav, New Delhi, June 4
In a significant move to bolster India's appeal as an investment destination, the Union Cabinet on Wednesday approved the scrapping of capital gains tax on investments in government securities by Foreign Portfolio Investors.
The decision, taken at a Cabinet meeting chaired by Prime Minister Narendra Modi on Wednesday, will be implemented through an ordinance amending the Income Tax Act.
The government has chosen the ordinance route to fast-track the relief measure, bypassing the need to wait for a parliamentary session. A formal notification is expected to be issued by this week, government sources told ANI.
Under the existing tax framework, foreign investors are liable to pay 12.5 per cent Long Term Capital Gains (LTCG) tax on listed shares and bonds held for more than 12 months.
The exemption on government securities is expected to significantly improve the yield attractiveness of Indian sovereign debt for overseas investors, who have long flagged the tax as a deterrent.
Government sources indicated that Wednesday's decision is not a standalone step. Further measures are being planned to encourage capital inflows into India and to cushion the economy against the cascading effects of the ongoing West Asia conflict, which has rattled global financial markets and supply chains in recent months.
The move comes at a time when global investors are reassessing emerging market exposures amid geopolitical uncertainty.
By removing the capital gains burden on government securities, New Delhi is signalling its intent to deepen the participation of foreign capital in its sovereign bond market, a step that could also support the rupee and help manage India's borrowing costs.
— ANI
Reader Comments
But why an ordinance? Parliament should debate such major tax policy changes. Also, while foreign investors get relief, what about domestic investors who also put money in G-Secs? Seems like we are always prioritizing foreign money over our own citizens' interests. 🤔
This is good news! Foreign capital will help reduce our borrowing costs and improve liquidity in the bond market. With West Asia tensions and global uncertainty, India needs to stay attractive. Every little step counts. Well done, government! 👏
I am cautiously optimistic. While attracting foreign investment is important, we must ensure that our domestic bond market doesn't become too dependent on fickle foreign flows. What happens when global conditions change and they pull out? Need more long-term stability measures.
Honestly, this is just a band-aid solution. The real issue is inflation and unemployment. Foreign money won't help the common man. What about the small investor who pays 12.5% tax on mutual funds? The government seems to only care about big players. 😤
Great timing! With global uncertainty and the West Asia crisis, making our G-Secs tax-free is a masterstroke. Will attract more investors and strengthen our rupee. India is becoming a safe haven for global capital. Proud of this move! 🚀🇮🇳
K