India opposes granting capital gains tax exemptions to foreign debt investors, even if it delays its goal of including its bonds in global bond indices, two sources familiar with the matter said.
The Indian government had started the process of listing its debt on global indices in 2019 and had discussions with JP Morgan and Bloomberg-Barclays while also talking with Euroclear regarding clearing and settlement.
Under existing rules, a foreign investor is required to pay a short-term capital gains tax of 30% if a listed bond is sold within 12 months.
The listing plan for the global bond index was due to be announced early this year, but the government’s emphasis on capital gains has slowed talks with index operators, officials familiar with the issues told Reuters. talks.
The finance ministry did not immediately respond to a letter and message seeking comment.
In October last year, Reserve Bank of India Governor Shaktikanta Das said inclusion of the index was at an advanced stage of discussions with major index providers and was expected to take place “may -be in the next few months”.
“The tax part is the only thing that remains to be solved. But there is no reason to tax citizens and not tax foreign investors,” said a source familiar with the discussions.
Domestic investors must pay short-term capital gains tax on leveraged investments in accordance with their applicable tax brackets and an additional 4% tax.
“The risks of such inclusions in the index have always been there and although India is in much better shape now, things are quite volatile overall and it may not necessarily be the best time for it,” he said. he added.
Inclusion in the index will bolster sentiment in the near term and additional inflows of foreign investment in the medium term would help buy policymakers time until global market conditions become a little easier to navigate, it said. said Deutsche Bank in a recent note.
“Inclusion in the global bond index is not a panacea for all the challenges India faces at this stage, but at least it can help at the margin,” the bank said.