Nirmala Sitharaman
The government has approved the ordinance to amend the Income Tax Law. This decision has been taken by the cabinet to accelerate foreign investment. This step has been taken by the Central Government to promote the flow of foreign capital into the country and to reduce the adverse effects of the Iran war on the economy. This ordinance will come into force after the approval of the President. The government will completely abolish capital gains tax on investments made by foreign portfolio investors (FPIs) in Indian government securities (G-secs).
Currently, foreign investors have to pay long-term capital gains (LTCG) tax of 12.5% on bonds and listed shares held for more than 12 months. Apart from this, they also have to pay withholding tax of 20% on the interest earned from government bonds. The concessional rate of 5% on this was abolished by the government in 2023. This year, foreign investors have made huge sales of ₹ 2.5 lakh crore. Since then there was a demand for tax reduction. Some more big steps can also be taken in the coming time.
Government can take more steps
According to sources, more important steps are likely to be taken in the future to strengthen India’s foreign exchange reserves and attract global investment. This decision has come just a few days after Union Finance Minister Nirmala Sitharaman’s statement in which she had said that she is ready to listen to the opinion of investors regarding reducing tax on long-term and short-term capital gains. In the Union Budget presented in July 2024, the Finance Minister had increased the LTCG tax rate on most assets from 10 per cent to 12.5 per cent, while the exemption limit for listed equity and equity-linked instruments was increased to Rs 1.25 lakh.
According to Harsha Vardhana VM, Group CEO, Atom Financial Services, these figures are so big that they cannot be ignored. ‘FPIs were net sellers in India in eight of the 12 months of 2025 with a total outflow of Rs 1,66,286 crore. There was an outflow of Rs 33,598 crore in January 2026 alone, which was the highest monthly outflow since August 2025.
