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USISPF backs India’s bond market tax reform
President and CEO Dr. Mukesh Aghi said the policy change would strengthen India's appeal to international investors, particularly in the bond market.
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Staff Reporter - Sun, 07, Jun 2026
- 02:03 EDT
- 38
Logo of USISPF / X
The US-India Strategic Partnership Forum (USISPF) has welcomed the Indian government's decision to abolish capital gains tax and withholding tax on interest earned by Foreign Portfolio Investors (FPIs) from investments in Government Securities (G-Secs), describing the move as a significant step toward attracting greater foreign investment into India's bond market.
The reform was approved by India's Union Cabinet and subsequently enacted through an ordinance promulgated by the President of India. The measure took effect on April 1, 2026.
In a statement, USISPF President and CEO Dr. Mukesh Aghi said the policy change would strengthen India's appeal to international investors, particularly in the bond market.
“This is a strategically calibrated and long-awaited reform that strengthens India’s position as an increasingly attractive destination for global capital, particularly in the bond market,” Aghi said.
He said the measure comes at a time of global economic uncertainty and could help support capital inflows while reinforcing confidence in India's investment environment.
“In an environment marked by global economic uncertainty, the move provides a valuable capital account cushion while reaffirming the Government of India’s commitment to fostering a stable, predictable, and globally competitive investment climate,” he added.
'Vishal Mahadevia', chairman of USISPF's Strategic Working Group on Private Equity and Venture Capital, said the reforms could strengthen India's prospects for broader inclusion in global bond indices.
“The reforms would bolster India’s case for greater inclusion in global bond indices, supporting sustained capital inflows and deeper integration with global financial markets,” Mahadevia said.
He said the changes could also improve liquidity in government securities and support the development of the corporate bond market.
“In addition to the macro-economic impact, it is also expected to boost the liquidity in G-secs thus enabling appropriate price-discovery across tenors in the Corporate Bond Market – thus supporting its growth and development,” he said.
Reacting to the announcement, Tarun Bajaj, chairman of USISPF's US-India Tax Forum and former revenue secretary of India, said the removal of the taxes addresses a long-standing issue that had limited foreign participation in India's sovereign debt market.
“The abolition of capital gains tax and withholding tax on interest earned on Foreign Portfolio Investments in Indian Government Securities is a timely, forward-looking, and structurally significant reform,” Bajaj said.
“It removes a long-standing tax friction that has constrained greater foreign participation in India’s sovereign debt market and aligns India more closely with global best practices.”
Bajaj said a deeper and more liquid secondary market for government securities could improve price discovery and market efficiency. He also said the reform may help support investor confidence amid global geopolitical uncertainties, volatile capital flows and exchange rate pressures.
According to Bajaj, the measure could encourage sustained foreign inflows into India's debt market, diversify sources of external capital and provide support for the rupee when equity portfolio flows are affected by global market sentiment.
“Overall, this is a well-calibrated reform that will strengthen India’s financial markets while delivering tangible macroeconomic and fiscal benefits,” he said.
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