The central government is considering giving relief in tax rules to attract foreign investors again towards the Indian market. According to a Times of India report, the Union Cabinet has recommended an ordinance, the purpose of which is to simplify tax rules for foreign investors investing in certain types of securities. This step has been taken at a time when the rupee has weakened by about 6% against the dollar and foreign portfolio investors (FPIs) have withdrawn a record Rs 2.25 lakh crore from the Indian stock market since January.
According to the report, the government and RBI are working together on several steps to increase foreign investment in the market and reduce pressure on the rupee. It is expected that RBI can also make some important announcements after the Monetary Policy Committee (MPC) meeting. The government is considering giving complete exemption to foreign institutional investors (FIIs) from tax on investment in Indian government bonds (G-Secs). At present, foreign investors pay 20% withholding tax on interest income from government bonds. Earlier this rate was 5%. The government can again provide some relief to investors in this. With this, foreign investors will invest money in bonds and dollar investment will increase.
What was the demand regarding tax?
Foreign investors had also demanded from the government to review the rules of Capital Gains Tax and Securities Transaction Tax (STT) before the budget. Tax experts believe that due to the increased tax burden in the last few years, India is no longer as attractive for foreign investors as before. If this ordinance is implemented, it will be considered a big step towards the return of foreign investors and bringing stability in the market.
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