In a major move to attract foreign investment, the Central Government has decided to remove capital gains tax on foreign investors investing in Indian government bonds.
Sources said the proposal was approved by the Union Cabinet on Wednesday. The government has also cleared an ordinance to amend the Income Tax Act, which will take effect after receiving the President’s approval.
The decision comes at a time when India is facing heavy foreign investor outflows, pressure on the rupee, and rising crude oil prices due to the ongoing tensions in West Asia.
According to sources, the government hopes the tax relief will encourage more foreign money to enter India’s debt market and help strengthen the economy.
Foreign Portfolio Investors (FPIs) have reportedly sold nearly ₹2.5 lakh crore worth of Indian shares this year, making 2026 one of the biggest years for foreign fund outflows.
Currently, foreign investors pay a 12.5% long-term capital gains tax on listed shares and bonds held for more than one year.
Under the new decision, capital gains tax on investments made by foreign investors in Indian government securities, also known as G-Secs, will be completely removed.
The government is also expected to address taxes on interest earned from government bonds. At present, foreign investors pay a 20% withholding tax on such interest income.
Market experts have often argued that India’s existing tax structure makes government bonds less attractive compared to those in other emerging markets.
The government believes the move will bring fresh foreign investment into the bond market, increase dollar inflows, improve liquidity, and provide support to the rupee.
The decision is also aimed at reducing economic pressure caused by rising crude oil prices, which have raised concerns about inflation and economic growth.
Sources indicated that this may be the first of several measures being considered to improve foreign investment and make Indian financial markets more attractive to global investors.
Market participants are now waiting for the official notification and any further announcements from the government and the Reserve Bank of India.
The move is being seen as one of the most significant tax relief measures for foreign investors in recent years.
