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India may cut bond tax on foreign investors after RBI proposal, aiming to curb rupee slide and attract inflows as FIIs exit, oil driven import costs and forex pressure rise
India Plans Bond Tax Cut To Attract Foreign Capital Amid Oil Shock
India might reduce the taxes on foreign investors on bond investment in the country to align policies with global norms and attract inflows, according to a Bloomberg report.
The proposal of the move came at a time when Foreign investors are leaving the Indian equity market. The weakening of the rupee, oil shock, attractive valuation of other markets and negative sentiment have intensified FII outflow.
The selling of FIIs has intensified in 2026, with the first four months seeing the exit of an amount worth Rs 2.06 lakh crore. DIIs have given some cushion amid the outflow of the FIIs.
According to Bloomberg report, the proposal to reduce taxes on foreign investors in India’s bond market has been suggested by RBI. This measure is expected to curb the rupee’s depreciation, the report added.
Currently, interest income on coupon payments is taxed at around 20 per cent. Earlier, they used to pay 5 per cent tax due to dispensation, which the government removed in 2023.
The development has brought relief to India’s rupee, which has been dropping to record lows in the past few days. Rupee hit an all-time low at 95.96 before recovering slightly after the news. The 10-year treasury yield also fell as much as five basis points to 7 per cent.
India rupee performed the worst in Asia so far in 2026, down over 6 per cent against the dollar.
Bloomberg report said that luring capital inflows becomes necessary to help fund a larger import bill as the Iran war raises oil prices.
Why Is India’s Forex Under Pressure?
Since the fallout of the Iran-US war, the crude oil prices spiked, reaching to a level of $105 per barrel. As India imports almost 85 to 90 per cent of its crude oil requirement, it is hurting its forex reserve, which is dwindling at a faster pace.
Government has taken several measures to halt the outflow of the forex, even PM Narendra Modi has appealed to nation to follow some measures to help reduction in the outflow of the forex.
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