Government likely to propose capital gains tax exemption for global debt investors in Union budget, plans $250bn investment: report

Government likely to consider capital gains tax exemption for global debt investors in next Union budget, reports Economic period.

The move would set the stage for India’s inclusion in the widely-watched global bond indices of Bloomberg-Barclays and JP Morgan.

According to the report, the waiver and resulting inclusion of Indian debt securities in global bond indices will likely trigger large flows of capital into local debt securities, which could depress yields in the country.

Foreign investors are expected to start trading selected sovereign securities after their inclusion in global bond indices, which is expected to attract up to $250 billion in inflows over the next decade and reduce the cost of borrowing. India up to 50 basis points, according to a Morgan Stanley estimate quoted in the HEY report.

A foreign investor is expected to pay a short-term capital gains tax if a listed bond is sold within 12 months. The tax impact is around 30 to 40% depending on the nature of the investor.

Earlier last year, former chief economic adviser K Subramanian said abolishing capital gains liabilities was perhaps the easiest route to get India’s debt listed on Euroclear.

Global financial centers track bond indices for parking excess cash and waiving short-term capital gains liabilities will help remove the final hurdle to India’s inclusion in these indices.

Carol M. Barragan