In a bid to revive foreign investment inflows and strengthen market sentiment, the Indian government is reportedly considering tax relief measures for foreign investors. According to reports, the Union Cabinet has recommended an ordinance aimed at simplifying tax regulations for certain categories of foreign investments, signaling a renewed effort to make Indian financial markets more attractive to global investors.
The move comes at a time when the Indian rupee has weakened by nearly 6% against the US dollar, while Foreign Portfolio Investors (FPIs) have withdrawn a record ₹2.25 lakh crore from Indian equity markets since January. To counter these pressures, the government and the Reserve Bank of India (RBI) are said to be exploring multiple policy measures to boost capital inflows and support the currency.
One of the key proposals under consideration is granting foreign institutional investors (FIIs) tax exemptions on investments in Indian government securities (G-Secs). Currently, foreign investors are required to pay a 20% withholding tax on interest earned from government bonds, compared to the earlier rate of 5%. Easing this tax burden could encourage greater participation in India’s bond market and increase foreign currency inflows.
Foreign investors have also urged the government to review capital gains tax and Securities Transaction Tax (STT) regulations, arguing that rising tax costs have reduced India’s competitiveness compared to other investment destinations. Market experts believe that a more investor-friendly tax regime could help restore confidence among global funds and attract fresh investments into the country. If implemented, the proposed tax reforms could mark a significant step toward bringing foreign investors back to Indian markets, improving liquidity, supporting the rupee, and reinforcing India’s position as a preferred investment destination in the global economy.
