India will eliminate the capital gains tax on government security investments made by foreign portfolio investors [1].
The move is designed to cushion the rupee and increase overseas participation in the nation's debt market. Officials intend to mitigate economic fallout resulting from geopolitical tensions, including the war in Iran [3].
The Indian government announced the plan on Thursday, June 4, 2026 [1]. A follow-up statement on Friday, June 5, 2026, specified that the exemption would apply to foreign institutional investors, and the Bank for International Settlements [2]. The exemption covers receipts arising from both the interest and the sale of government securities [2].
Under current regulations, the long-term capital gains tax on listed shares and bonds held for more than 12 months is 12.5% [4]. Additionally, the current withholding tax on interest derived from government bonds is 20% [4].
"India plans to scrap capital gains tax on foreign portfolio investments in government securities, which could help boost such inflows," a source familiar with the matter said [1].
The policy shift comes as the finance ministry seeks to make Indian debt more attractive to global investors. A report from Business Standard said the move could significantly boost overseas participation in the debt market [5].
An Indian government spokesperson said on Friday that the government would exempt foreign institutional investors, and the Bank for International Settlements from capital gains tax on receipts arising from interest or sale of government securities [2].
“India plans to scrap capital gains tax on foreign portfolio investments in government securities, which could help boost such inflows”
By removing tax barriers for foreign institutional investors, India is attempting to lower the cost of borrowing and stabilize its currency. This strategic pivot suggests a priority on liquidity and capital inflows to offset the volatility caused by regional conflicts, effectively using tax policy as a tool for macroeconomic stability.
