04/06/26, The Union Cabinet on Wednesday recommended an ordinance to ease tax rules for foreign investors in some categories of securities, the Times of India reported. The proposal was moved by the finance ministry, though the details were not immediately available, the report said. The move comes at a time when the rupee has weakened 6 percent against the US dollar, and foreign portfolio investors have pulled out a record Rs 2.25 lakh from Indian equities since January.

The reported tax relief proposal is being viewed as part of broader policy efforts to address pressure on the rupee and sustained foreign investor outflows from domestic markets.

According to the Times of India report, the move is likely to be part of a coordinated response with the Reserve Bank of India. The central bank is expected to announce measures on Friday after the Monetary Policy Committee meeting, which began on Wednesday.

The government has also been seeking to

 address concerns raised by various sectors through other policy steps, the report said. These include a government-guaranteed credit line for businesses, a package for exporters and adjustments in duties, including fuel, to shield the economy from the impact of the West Asia war.

The rupee's decline and continued FPI withdrawals have emerged as key areas of concern for policymakers, the report said.

Foreign investors currently pay a withholding tax, or tax deducted at source, of 20 percent on interest income from government bonds. Until July 1, 2023, the rate stood at 5 percent on income from government securities, state development loans and rupee-denominated bonds.

In the run-up to the Union Budget, representatives of foreign portfolio investors had sought tax changes, including a review of the capital gains tax regime for listed securities. They had also argued against the levy of both the capital gains tax and the securities transaction tax.

Tax experts cited in the report said the government has, over the years, increased long-term and short-term capital gains tax while also levying securities transaction tax. They said this has made investments in India less attractive.

The proposed ordinance, if notified, would mark another step in the government's attempt to respond to concerns around foreign investor participation at a time of currency weakness, market outflows and external pressure from the West Asia conflict.

source:Network18