Govt May Move Ordinance for Tax Relief for Foreign Investors: Report

The Union Cabinet has reportedly approved an ordinance aimed at easing tax rules for foreign investors in certain categories of securities, in a move seen as part of wider efforts to stem capital outflows and support the rupee.

The move is likely part of a coordinated action with Reserve Bank of India, which is expected to announce measures on Friday after the end of its Monetary Policy Committee Meeting, a report in the The Times of India said.

The proposal, moved by the finance ministry, seeks to address long-standing concerns of foreign portfolio investors over India's tax regime., the report said.

While details of the ordinance have not yet been disclosed, the timing is significant. The rupee has weakened about 6% against the US dollar this year, while foreign investors have withdrawn a record ₹2.25 trillion from Indian equities since January.

Foreign portfolio investors currently face a 20% withholding tax on interest income from government bonds. Prior to July 2023, a concessional 5% rate applied to income earned from government securities, state development loans and rupee-denominated bonds.

FPIs have also sought a review of capital gains taxation on listed securities and have argued against the simultaneous levy of capital gains tax and securities transaction tax.