The Indian government has scrapped the 12.5% long-term capital gains tax on investments made by foreign portfolio investors in government securities.
The tax exemption will be applied retrospectively from 1 April 2026.
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The action comes as the Indian rupee faces mounting depreciation pressure, amid high oil prices and persistent equity outflows, noted Reuters.
In its official statement, the ministry of finance said: “Recognising the importance of a competitive tax regime in attracting global capital, the Government has decided to rationalise the tax treatment applicable to investments by FPIs in Government Securities, by exempting such investments from income tax on any interest or capital gain. This step will align the taxation on G-Secs with many comparable jurisdictions.”
As part of the reforms, the government has also broadened the Fully Accessible Route (FAR) framework to include 15-year, 30-year, and 40-year government bonds.
Sovereign Green Bonds have been added to the FAR basket as well.
This change enables non-resident investors to purchase these securities without any quantitative limits.
Additionally, investment caps, concentration limits, and security-specific restrictions for foreign portfolio investors under the general route have been removed.
However, the overall foreign investment ceiling remains unchanged at 6% of outstanding central government securities and 2% of state development loans.
“These measures will help in development of a smooth yield curve, and attract stable systematic inflow of long-term, patient foreign capital, including long-term investors such as pension funds, insurance companies, and sovereign wealth funds. This is also expected to boost foreign exchange inflows for the country,” the ministry added.
