Looking to tackle foreign outflows and preserve forex, the government is weighing a major cut in the tax burden imposed on foreign investors investing in domestic bonds.
Policymakers are looking to bring the country’s framework closer to international standards and encourage greater capital inflows, according to people familiar with the discussions.Foreign investors in Indian bonds are required to pay both short-term and long-term capital gains taxes, depending on the tax treaties applicable to their home countries.
Earlier, overseas investors enjoyed a concessional 5 per cent tax rate on interest income, but that benefit was withdrawn in 2023.The proposal was suggested by the Reserve Bank of India and is currently under active consideration by the Finance Ministry, sources told Bloomberg.
Talks around reducing taxes for overseas investors have accelerated amid efforts to slow the rupee’s decline, they added.Following reports of the discussions, the rupee recovered from earlier losses, while bond prices strengthened.
The yield on the benchmark 10-year government bond dropped by as much as five basis points to 7 per cent.Authorities have already introduced several defensive measures to limit pressure on the currency, including restrictions on trading positions.
