India has abolished capital gains tax on certain foreign investments in government securities, a move aimed at attracting more overseas capital into the country’s debt market. The decision was announced through an ordinance and is expected to boost foreign investor participation in Indian government bonds.
The tax relief applies to foreign investors investing through the Fully Accessible Route (FAR), a mechanism that allows non-residents to invest in specified government securities without investment limits. The government hopes the measure will make Indian bonds more competitive compared to other emerging markets.
Officials said the move is part of a broader strategy to deepen India’s bond market and improve access to long-term foreign capital. The exemption removes a key concern for global investors, who had previously faced capital gains tax liabilities on profits earned from government securities.
The decision comes at a time when India is seeking to attract larger foreign portfolio investments following the inclusion of Indian government bonds in major global bond indices. Policymakers believe increased foreign participation will improve market liquidity, reduce borrowing costs and support economic growth.
Market experts welcomed the announcement, noting that tax clarity and lower investment costs could encourage greater inflows from global funds. They said the measure aligns India’s taxation framework more closely with international standards and could enhance the appeal of Indian debt instruments.
The exemption is also expected to support the Indian rupee by encouraging additional foreign currency inflows. Analysts believe stronger participation from overseas investors may help stabilize financial markets and strengthen India’s position as a preferred investment destination.
The government’s decision marks another step in integrating India’s financial markets with global capital markets while ensuring a steady flow of overseas investment into the country’s growing economy.
Industry participants said the reform reflects the government’s commitment to creating a more investor-friendly environment and developing India’s financial markets. With foreign interest in Indian bonds already rising, the latest tax relief could further accelerate investment activity.
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