The Union Cabinet on Wednesday recommended an ordinance to ease tax rules for foreign investors in some categories of securities. The details of the proposal moved by the finance ministry were not immediately available. However, it is being seen as an effort to help strengthen the rupee, which has weakened 6% against the US dollar as foreign portfolio investors have pulled out a record Rs 2.6 lakh crore from equities since January.
Coordinated Action with RBI
The move is likely part of a coordinated action with the Reserve Bank of India, which is expected to announce measures on Friday following the monetary policy committee meeting that began on Wednesday. The government has been seeking to address concerns of various sectors through measures such as a government-guaranteed credit line for businesses and a package for exporters, apart from adjustments in duties, including fuel, to insulate the economy from the impact of the West Asia war.
Concerns Over Rupee Slide and FPI Withdrawal
But the slide of the rupee and the constant FPI withdrawal from the market has been an area of concern. In the run-up to the Union budget, representatives of FPIs had sought tax changes, including a review of the capital gains tax regime for listed securities, and argued against the levy of capital gains tax and securities transaction tax. Tax experts have said that over the years, the government has increased long-term and short-term capital gains tax, while levying STT, which makes investments in India less attractive.
The ordinance is expected to address some of these concerns by providing tax relief to foreign investors in certain categories of securities, thereby potentially stemming the outflow of foreign capital and supporting the rupee. The government is also exploring other measures to boost investor confidence and stabilize the currency markets.
