India plans waiving capital gains tax on foreign investment in govt bonds amid Iran war
PTC News Desk: In a significant move to encourage foreign investment, the government has approved the removal of capital gains tax for overseas investors investing in Indian government bonds.
The proposal received clearance from the Union Cabinet on Wednesday as part of a wider strategy to attract greater capital inflows into the country. The measure is expected to strengthen the rupee, enhance investor confidence, and help shield the economy from external pressures arising from the ongoing Iran conflict and elevated global crude oil prices.
Officials believe the tax relief will make Indian government securities more attractive to foreign investors, potentially increasing overseas participation in the country's debt market and improving overall liquidity.
The Union Cabinet has also cleared an ordinance to amend the Income Tax Act in order to give effect to the proposed changes. The amendment will take effect once it receives the assent of the President.
The decision comes amid mounting economic challenges, including record foreign investor withdrawals, sustained pressure on the rupee, and rising energy costs linked to the prolonged conflict in West Asia. According to sources, the government aims to attract higher foreign investment into India's debt market and mitigate some of the economic impact of the Iran conflict and elevated crude oil prices.
Foreign Portfolio Investors (FPIs) have reportedly pulled out nearly Rs 2.5 lakh crore from Indian equities this year, making 2026 one of the most challenging years for foreign fund outflows on record.
The large-scale selling by overseas investors has added strain on the rupee and intensified demands from market participants for policy measures that enhance the appeal of Indian financial assets. By removing capital gains tax on investments in government bonds, the government hopes to boost foreign participation in the debt market and improve overall capital inflows into the economy.
- With inputs from agencies
