The Indian government has announced a significant policy shift aimed at attracting foreign portfolio investments by exempting foreign investors and the Bank for International Settlements from income tax on interest and capital gains, effective April 1, 2026.
Currently, foreign investors face a 12.5% long-term capital gains tax on listed shares and bonds held for over 12 months, along with a 20% withholding tax on interest from government bonds.
In conjunction with this tax exemption, the Reserve Bank of India is expanding the range of government securities available to non-resident investors and lifting restrictions on short-term investments and concentration limits for foreign portfolio investors.
These measures come as foreign investors have sold $27.6 billion in Indian equities since the start of the year, contributing to the Indian rupee's decline of over 6% year-to-date, making it one of the worst-performing currencies in Asia.
Economists, including Krishna Bhimavarapu from State Street Global Advisors, view these changes as timely and beneficial for stabilizing the rupee and improving India's balance of payments this year