India has announced a sweeping exemption from capital gains tax for foreign investors and the Bank for International Settlements on interest and the sale of government securities, effective April 1, 2026, as part of efforts to attract foreign capital and stabilize the rupee amid record capital outflows [1]. Previously, foreign investors faced a 12.5% long-term capital gains tax on listed shares and bonds held for more than 12 months, and a 20% withholding tax on interest earned from government bonds [1].
The Reserve Bank of India (RBI) has also expanded the range of government securities available for non-resident investors and removed limits on short-term investment, concentration, and individual securities for foreign portfolio investors [1]. Additionally, the RBI increased limits for investment in stocks without SEBI registration for non-resident Indians and those holding Overseas Citizenship of India [1].
Foreign investors have sold Indian equities worth $27.6 billion since January 2026, compared to $18.9 billion in 2025, according to NSDL data, highlighting the severity of capital outflows [1]. These outflows, combined with a rising import bill due to higher global oil prices, have pressured the Indian rupee, which has fallen more than 6% year-to-date and is among the worst-performing currencies in Asia [1].
RBI Governor Sanjay Malhotra stated that these measures, along with recent trade deals, will result in a "much better BOP (balance of payment) this year" than would have been otherwise [1]. Krishna Bhimavarapu, APAC economist at State Street Global Advisors, described the policy changes as a "step in the right direction" and noted the timing was "very good," suggesting positive market sentiment toward the government's actions [1].
CONCLUSION
India's exemption of capital gains tax for overseas bond investors and expanded investment limits for non-residents are significant steps to reverse record capital outflows and support the rupee. Analysts and officials expect these measures to improve the balance of payments and stabilize currency performance. The market response is cautiously optimistic, viewing the reforms as timely and impactful.