The central government is reportedly planning to scrap the capital gains tax on foreign portfolio investments (FPIs) in government securities to ease the immense downward pressure on the Rupee and curb the outflow of foreign capital from India's financial markets.
The Centre may promulgate an ordinance to facilitate the proposed tax relief. At present, foreign investors in Indian government securities (G-Secs) pay a 20 per cent withholding tax on interest earnings and a 12.5 per cent capital gains tax.
FPIs have withdrawn a massive Rs 2.25 lakh crore out of Indian equities in 2026, already surpassing the total outflows of Rs 1.66 lakh crore recorded for the entirety of 2025.
Ahead of the Union Budget, foreign portfolio investors had urged the government to revisit the tax framework for listed securities, including the capital gains tax regime. They had opposed the simultaneous levy of capital gains tax and the securities transaction tax (STT), arguing that the dual tax burden reduced the attractiveness of Indian markets.
According to tax experts cited in the report, successive increases in both long-term and short-term capital gains taxes, coupled with the continued imposition of STT, have added to investors' costs.
Geopolitical tensions in the Middle East and sustained foreign portfolio investor outflows have led to a bloodbath for the Rupee in the currency markets. The domestic currency has lost around 7 per cent of its value against the US dollar so far in 2026, prompting the Reserve Bank of India (RBI) to undertake its largest currency market intervention in at least 15 years.
The central bank sold a record net USD 53.13 billion in the spot foreign exchange market during FY26 to contain volatility and slow the rupee's decline amid .
While there has been no confirmation from the government, the purported move has been criticised as discriminatory against domestic and retail investors, who have steadily and single-handedly kept the Indian stock markets afloat through their Systematic Investment Plans (SIPs), negating the impact of massive foreign capital outflows.
