India is considering a significant reduction in the taxes paid by foreign investors on the nation’s bonds as authorities seek to align policies with global norms and attract inflows, a Bloomberg report said, quoting people with knowledge of the matter.
The Reserve Bank of India has recommended the move, which is being seriously considered by the finance ministry, the report said. Deliberations to ease the tax burden have gathered pace as authorities try to curb the rupee’s depreciation, they added.
The rupee reversed losses, while bonds gained on the news. The 10-year yield fell as much as five basis points to 7 per cent before retracing some of the decline.
“It is modestly positive, but that’s not going to overcome the overall negative sentiment in the Indian bond market,” said Edwin Gutierrez, head of emerging market sovereign debt at Aberdeen Investments in London.
“Inflation is weighing most on Indian bonds and keeping foreign investors from buying Indian debt.”
Policymakers have so far taken defensive steps to stem the currency’s slide, such as limiting the size of trading positions. Luring capital inflows becomes necessary to help fund a larger import bill as the Iran war raises oil prices.
The rupee is Asia’s worst currency performer so far in 2026, down over 6 per cent against the dollar.
Overseas buyers have to pay both short-term and long-term capital gain taxes, depending on their jurisdiction. India has agreements with dozens of countries that allow some to benefit from lower rates.
Interest income on coupon payments is taxed at around 20 per cent. Foreign investors used to pay just a 5 per cent tax on interest earned, but that dispensation ended in 2023.
The cohort has been vocal about the high level of taxes they face in India, compared with other emerging markets like Indonesia, Malaysia, Mexico and South Africa.
Fresh low
The rupee weakened to a fresh record low of 95.96 before closing with a marginal gain of 2 paise at 95.64 against the US dollar on Thursday, as it resisted pressure from a firm American currency and inflation worries amid elevated energy prices.