Modi government has taken a very big step to boost the country’s economy and calm the chaos in the stock market. The Central Government has approved a very important Ordinance to amend the Income Tax Law to rapidly attract foreign investment into India. This decision has been taken by the Union Cabinet at a time when the clouds of Iran war crisis are looming over the markets around the world. The main objective of the government is to increase the flow of foreign capital into the country and reduce the adverse impact on the Indian economy due to the war. After being passed by the Cabinet, this ordinance will now be implemented in the entire country as soon as it gets the approval of the President.
Under this historic decision, the government is going to completely abolish capital gains tax on investments made by foreign portfolio investors (FPIs) in Indian government securities (G-secs) i.e. government bonds. The government hopes that after this tax waiver, foreign investors will once again turn to the Indian market.
Know how much heavy tax foreign investors pay now
If we talk about the current tax system, currently foreign investors have to pay Long-Term Capital Gains (LTCG) tax at the rate of 12.5 percent on the sale of bonds and listed shares held with them for more than 12 months. Apart from this, they also have to pay a hefty withholding tax of 20 per cent on the interest earned from these government bonds. Let us tell you that earlier the concessional rate of 5 percent available on this was abolished by the government in the year 2023 itself. Due to heavy taxes and global uncertainty, foreign investors have made huge sales of about Rs 2.5 lakh crore from the Indian market this year. After this big withdrawal, demand for tax reduction was continuously being raised. Market experts say that some more big and surprising steps can be taken by the government in the coming times.
Government can take even bigger steps to increase foreign exchange reserves
According to the news coming from government sources, many more important policies can be announced in the future to strengthen India’s foreign exchange reserves to a record level and attract big investors from all over the world. This major decision of the government has come just a few days after the statement of Union Finance Minister Nirmala Sitharaman, in which she had clearly said that she is fully ready to listen to the opinion of investors and market leaders about reducing the tax rates on long-term and short-term capital gains. It is noteworthy that in the Union Budget presented in July 2024, the Finance Minister had increased the LTCG tax rate on most assets from 10 percent to 12.5 percent, while the annual limit of tax exemption for listed equity and equity-linked instruments was increased from Rs 1 lakh to Rs 1.25 lakh.
The figures are so big that it was impossible to ignore them
On this entire matter, Harsha Vardhana VM, Group CEO of Atom Financial Services, has given his important opinion on the current situation of the market. Citing the figures, he said that the figures of selling by foreign investors were so huge that it was completely impossible for the government to ignore them for a long time. He said that out of the total 12 months of the year 2025, during eight months, foreign portfolio investors (FPIs) were net sellers in India, that is, they sold more than bought. Due to this, a huge capital of Rs 1,66,286 crore went out of the Indian market. Not only this, there was an outflow of Rs 33,598 crore from the markets in the month of January 2026 alone, which was the largest monthly outflow recorded in any single month since August 2025. To stop this decline, the government has now taken a big gamble by removing the tax.
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