New Delhi: In a bid to attract dollar inflow, the government has scrapped long-term capital gains tax on investments made by foreign institutional investors (FIIs) in government securities through an Ordinance issued on Friday.
The Ordinance has brought changes in the Income Tax Act to provide the exemption. The government has decided to remove the capital gains tax on G-secs to attract long-term, patient capital because these instruments have a longer tenure.
The decision comes at a time when foreign investors have pulled out a massive Rs 2.6 lakh crore from equities so far this year, which is way higher than Rs 1.66 lakh crore withdrawn in the entire 2025 because of geopolitical tension. In the first three days of June alone, foreign investors pulled out about Rs 34,000 crore from equities putting additional pressure on the rupee.
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However, foreign investors have invested over Rs 17,000 crore in the debt market through Fully Accessible Route (FAR). However, they withdrew about Rs 4,000 crore under the general debt limit and Rs 340 crore through the Voluntary Retention Route (VRR) route so far this year.
As present FIIs have to pay Long Term Capital Gains (LTCG) tax of 12.5 per cent on their gains from investment in equity and debt investments. In the Union Budget presented in July 2024, the finance minister raised the LTCG tax rate on most assets to 12.5 per cent from 10 per cent. Meanwhile, short-term capital gains (STCG) tax on listed shares in India is taxed at 15 per cent, as per Section 111A of the Income Tax Act.
The rupee's slide to record lows has prompted authorities to step up efforts to stem its decline, with Prime Minister Narendra Modi last month appealing to people to conserve foreign exchange amid a surge in oil import costs due to the West Asia crisis.
