India has introduced a rule that exempts foreign institutional investors and the Bank of International Settlements India from tax on investments in Indian government bonds, in an apparent move to attract foreign capital and strengthen the rupee.
Effective immediately, interest earned on government securities and capital gains from the sale, exchange or transfer of the securities will no longer be taxed under an amendment to the income tax ordinance.
The amendment was posted on the website of the Ministry of Law & Justice’s legislative department on June 5.
Foreign investors previously had to pay a 12.5% capital gains tax on government bonds, and 20% withholding tax on interest earned from the bonds.
The government did not give a rationale for dropping the tax, but it appears to be aimed at attracting foreign investors. The Indian rupee has fallen more than 5% against the US dollar this year as foreign investors pulled out of the stock market.
