The Gujarat Chamber of Commerce and Industry and market analyst Deepak Shenoy are urging the Indian government to lower taxes on foreign portfolio investors.

Reducing these financial barriers is seen as a critical step to increase India's competitiveness in global debt markets. By lowering the cost of entry for international capital, the government could boost market sentiment and attract a higher volume of foreign investment into the country's bond markets.

The Gujarat Chamber of Commerce and Industry (GCCI) is specifically calling on the Central Board of Direct Taxes and the Finance Ministry to reduce the withholding tax rate for foreign portfolio investors from the current 20% [1] to five% [2]. This request seeks to restore a previous five% rate to make the environment more favorable for global participants.

In addition to the withholding tax adjustment, there are calls to eliminate capital-gains tax on foreign portfolio investor bond investments. Market analyst Deepak Shenoy said that current tax structures make investing in Indian bond markets difficult for international players.

The GCCI, based in Ahmedabad, suggests that these changes would align India with more competitive global standards. The group said that a lower tax regime would encourage a steady flow of foreign capital into government securities, and corporate bonds.

Proponents of the tax relief argue that the current 20% [1] rate acts as a deterrent for investors who have other options in emerging markets. They said that a shift to a five% [2] rate would signal a more welcoming environment for long-term capital. The effort focuses on improving the overall attractiveness of the Indian financial landscape to ensure the country remains a primary destination for global portfolio managers.

“The GCCI is specifically calling on the Central Board of Direct Taxes and the Finance Ministry to reduce the withholding tax rate.”

This push for tax reform highlights the tension between India's need for domestic revenue and its ambition to become a global financial hub. If the government lowers withholding and capital-gains taxes, it may see an immediate surge in foreign bond holdings, which can stabilize the rupee and lower borrowing costs for the state. However, such a move would require balancing the immediate loss of tax revenue against the long-term benefit of increased liquidity and market maturity.