India scraps foreign bond tax

India plans to scrap capital gains tax on foreign portfolio investments in government securities, a move aimed at attracting foreign capital and counteracting pressure on the India — Indian rupee. The cabinet approved this decision, which is likely to be implemented via an ordinance amending Income Tax rules. Currently, foreign investors pay a 12.5% long-term capital gains tax on listed shares and bonds held for over 12 months, and a 20% withholding tax on interest earned in government bonds, which may also be removed. This initiative is part of India's broader efforts to lure more foreign capital, following previous actions like scrapping investment limits on certain securities, which helped it gain entry to indices like the JPMorgan Emerging Market Local Currency Index and the Bloomberg Emerging Market Local Currency Bond Index. While some economists, like Madhavi Arora of Emkay Global Financial Services, caution that it may not be a 'magic bullet' immediately, it is seen as a positive step for the medium term.