Due to the crisis arising in Western Asia, the Central Government might take a major decision to prevent foreign capital from moving out of the Indian market. According to a source, if Foreign Portfolio Investors (FPI) invest in government securities or bonds, the government is planning to completely waive or withdraw the capital gains tax on the returns earned from them.
On Wednesday, an ordinance was approved in the Union Cabinet meeting chaired by Prime Minister Narendra Modi to make necessary amendments to the income tax law. This conditional formal notification could be issued within this week itself.
Currently, foreign investors holding listed shares and other units for more than a year are given a 12.5% Long-Term Capital Gains (LTCG) tax. Apart from this, a 20% tax is levied on short-term capital gains (STCG) from government securities.
Following the recent escalation of the Middle East war, foreign investors have withdrawn approximately ₹2.47 lakh crore from the Indian market, which is double the amount compared to the year 2025. Due to the tariffs imposed by America, the rising value of the US Dollar, and the withdrawal of funds by foreign investors, the value of the Indian Rupee has depreciated significantly compared to previous records.
The Reserve Bank of India (RBI) is also likely to include government securities under the Fully Accessible Route (FAR). As a result, foreign investors will be able to invest in these bonds without any ownership restrictions. Simultaneously, through this scheme, the government aims to facilitate investments for non-resident individuals living outside India.
