India Offers Tax Exemption on Government Debt to Foreign Investors to Stem Capital Outflows and Support Rupee

India removed the long-term capital gains tax on foreign investors in government debt and exempted the Bank for International Settlements from tax on interest and gains. The exemption takes effect April 1, 2026. 5 percent tax on listed bonds held longer than 12 months and a 20 percent withholding tax on interest from government securities.

The Reserve Bank of India simultaneously widened the range of government securities available to non-resident investors and removed limits on short-term holdings, concentration, and individual securities for foreign portfolio investors. It also raised the investment ceiling for non-resident Indians and overseas citizens of India who invest in stocks without registering with the capital-market regulator.

9 billion sold in all of 2025, according to data from the Indian depository NSDL.

The sales, combined with higher oil import costs, have driven the rupee down more than 6 percent year to date and left it among Asia's weakest currencies. "All these measures, along with numerous trade deals India has entered into, will allow for a 'much better BOP this year,' than what would have been otherwise," RBI Governor Sanjay Malhotra said Friday.

Krishna Bhimavarapu, APAC economist at State Street Global Advisors, said the package is a step in the right direction and arrived at a good time.

Officials said the combined tax and regulatory changes should ease capital outflows and reduce pressure on the currency.