India is considering a significant reduction in the taxes paid by foreign investors on the nation’s bonds as authorities seek to align policies with global norms and attract inflows, according to people with knowledge of the matter.

The Reserve Bank of India recommended the move, which is being seriously considered by the Finance Ministry, the people said, asking not to be identified as the details are private. Deliberations to ease the tax burden have gathered pace as authorities try to curb the rupee’s depreciation, they added.

The Finance Ministry and the Reserve Bank of India didn’t respond to emails seeking comment.

Policymakers have so far taken defensive steps to stem the currency’s slide, such as limiting the size of trading positions. Luring capital inflows becomes necessary to help fund a larger import bill as the Iran war raises oil prices.

The rupee is Asia’s worst currency performer so far in 2026, down over 6% against the dollar. 

Overseas buyers have to pay both short-term and long-term capital gain taxes, depending on their jurisdiction. India has agreements with dozens of countries which allows some to benefit from lower rates. 

Interest income on coupon payments is taxed at around 20%. Foreign investors used to pay just a 5% tax on interest earned, but that dispensation ended in 2023.

The cohort have been vocal about the high level of taxes they face in India, compared with other emerging markets like Indonesia, Malaysia, Mexico and South Africa. Foreigners hold just 3% of the $1.3 trillion market, despite the fact Indian government bonds are now included in widely followed indexes like those from JPMorgan Chase & Co. and FTSE Russell.

Longer term, aligning taxation policies with global markets is seen as helping Prime Minister Narendra Modi achieve his goal of making India a developed nation by 2047.

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Published on May 14, 2026