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India has unveiled a fresh set of measures to attract foreign portfolio investment as overseas capital exits the country at an unprecedented pace. On June 5, the government announced a tax exemption for foreign investors and the Bank for International Settlements (BIS). Under the new rules, eligible investors will not have to pay income tax on interest earnings or capital gains from specified investments. The exemption came into force on April 1, 2026
Currently, foreign investors pay a 12.5% long-term capital gains tax on listed stocks and bonds held for more than a year. Interest earned from government securities is subject to a 20% withholding tax.
The Reserve Bank of India supported the government’s move by taking some steps to make it easier for foreign investors. They widened the scope of government securities for non-residents and eliminated the limits on short-term investments, concentration caps, and individual security holdings for foreign portfolio investors.
At a press conference following the monetary policy announcement, RBI Governor Sanjay Malhotra mentioned that these actions, together with India's new trade deals, should improve the country’s balance of payments this fiscal year.
Additionally, the RBI raised investment limits for NRIs and OCIs buying Indian stocks without needing to register with the market watchdog.
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Foreign selling in Indian markets has picked up this year. According to NSDL, overseas investors have unloaded $27.6 billion in Indian stocks since January. That's more than the $18.9 billion total for all of last year.
These massive sales, coupled with higher spending on imports due to climbing oil prices, have dropped the value of the rupee. It's become one of Asia's weakest currencies recently. Krishna Bhimavarapu, an economist at State Street Global Advisors, said recent measures might help the rupee, which has already lost over 6% against the US dollar, by encouraging capital inflows.
