The Indian government on June 5, 2026, removed the 12.5 percent long-term capital gains tax on foreign portfolio investments in government securities. The change applies from April 1, 2026. Officials stated that the decision aims to create a more competitive tax environment to draw international funds and to match practices in similar markets abroad. The Finance Ministry noted that interest and capital gains on such holdings will now be free from income tax.
Authorities also expanded the fully accessible route by adding 15-year, 30-year, and 40-year bonds, along with sovereign green bonds. This route permits overseas investors to buy designated government securities without quantity limits. Investment caps, concentration rules, and security-specific restrictions under the general route were lifted, though the overall ceiling remains at 6 percent of central government securities outstanding and 2 percent of state government securities.
The announcement follows net sales of 2.5 lakh crore rupees in Indian assets by foreign institutions, according to NSDL data, driven mainly by equity disposals. Foreign institutions recorded net purchases of 16,567 crore rupees in fully accessible route bonds and net sales of 4,025 crore rupees via the general route through June 5, 2026. Equity sales exceeded 2.6 lakh crore rupees and contributed to rupee pressure against the dollar.
Analysts welcomed the tax adjustment but questioned its impact on equity flows. One expert noted that equity and debt investors operate under separate mandates and that factors such as currency risk and valuations remain unaddressed. Separate budget measures raised limits for non-resident Indians and persons of Indian origin investing in domestic equities, and corresponding changes to foreign exchange rules were notified.
