India Scraps Taxes on Overseas Bond Investors to Pursue Bloomberg Index Inclusion

India eliminated the 12.5 percent long-term capital gains tax and the 20 percent withholding tax on interest income for foreign investors buying government bonds last month. Cnbc reported that the changes cleared the path for inclusion in the Bloomberg Global Aggregate Bond Index.

Foreign investors bought $7.7 billion of Indian debt in 2026 through June, exceeding the $6.6 billion total for all of 2025, according to data from Indian depository NSDL.

Purchases reached $5.8 billion in June alone. Nearly $6.5 billion entered government securities since the start of June, Cnbc reported, citing Reuters data. India also added government securities with 15-, 30- and 40-year maturities to the fully accessible route, which carries no investment caps.

Monthly inflows under the route hit $2.3 billion in June, the highest level in 14 months. Overseas ownership of fully accessible route bonds reached 7 percent. The benchmark 10-year Indian bond yield fell about 25 basis points to 6.73 percent.

Cnbc reported that India could receive a 0.7 percent weight in the Bloomberg index, generating an estimated $25 billion to $27 billion in inflows by financial year 2028. Foreign investors sold $27.6 billion of direct Indian equities in 2026 year-to-date.

India's balance of payments deficit widened to $23.6 billion in the financial year ended March 2026 from $5 billion a year earlier, with the April-May shortfall reaching $11 billion.

Indian bonds joined the JPMorgan Government Bond Index-Emerging Markets in 2024, producing net inflows of up to $20 billion. Bloomberg launched an electronic trading workflow for Indian government bonds last week that allows foreign portfolio investors to access liquidity from international and domestic banks through the Bloomberg Terminal.