India Cabinet Backs Tax Relief for Foreign Investors to Stabilize Rupee

The Union Cabinet of India has backed an ordinance to ease tax rules for foreign portfolio investors in specific securities ^[1].

This move is designed to stem the tide of foreign capital leaving the country and to strengthen the rupee, which has faced significant downward pressure. By reducing the tax burden on capital gains and securities transaction taxes, the government hopes to make Indian markets more attractive to international investors [1, 3].

The decision comes during a period of intense volatility for the Indian economy. The rupee has weakened by six percent against the U.S. dollar ^[3]. This currency depreciation has coincided with a sharp decline in foreign investment, as portfolio investors have exited Indian equities in large volumes ^[3].

Data indicates that foreign portfolio investors have pulled out between nearly Rs 2.5 lakh crore ^[2] and Rs 2.6 lakh crore ^[3] from Indian equities since January. This exodus has contributed to 2026 being identified as one of the worst years for foreign fund outflows in recent history ^[2].

The ordinance specifically targets the tax structures surrounding certain securities to address the concerns raised by these investors. The Union Cabinet said the measures are necessary to stabilize the financial environment and encourage a return of foreign capital ^[1].

Government officials are acting to counteract the pressure building on the rupee as foreign portfolio investors continue to sell off assets. The relief measures are intended to provide a more favorable fiscal environment for those holding bonds, and other securities ^[2].