Blitz Bureau
NEW DELHI: In a bid to attract foreign capital inflows in the country the government has issued a new ordinance that scraps the long-term capital gains tax on investments made by foreign institutional investors (FIIs) in government securities.
This ordinance will bring changes to the IT Act to provide the exemption and will be called the Income-Tax (Amendment) Ordinance, 2026. The centre will remove capital gains tax on government securities, as these primary securities provide long-term tenure.
Rupee volatility, foreign outflows key concerns
This decision comes as the Indian rupee continues to suffer volatility caused by elevated oil prices and FPIs outflow hits a record high, surpassing previous year’s outflow of Rs 1.67 lakh crore.
In the first three days of June FIIs were net sellers of domestic equities worth Rs 34,000 crore, and on a calendar year basis overseas investors have pulled out a record of Rs 2.6 lakh crore from Indian markets.
However, FIIs have purchased more than Rs 17,000 crore in debt markets through Fully Accessible Route (FAR), it added. So far this year, foreign investors have pulled out Rs 4,000 crore under the general debt limit and Rs 340 crore through Voluntary Retention Route (VRR).
Currently, FIIs pay LTGC tax of 12.5% on their gains from investments in debt and equity markets. In the Union Budget 2024, the government had raised the LTCG tax rate to 12.5% from the earlier 10%.
As per the Section 111A of the Income Tax Act, short-term capital gains (STCG) tax on listed shares in India is taxed at 15%.
The rupee’s continued volatility has prompted authorities to interfere in the currency markets. RBI Governor Sanjay Malhotra.
