Govt Likely To Propose Capital Gains Tax Waiver For Global Debt Investors In Budget, May Attract $250 Billion Of Inflows: Report

The government is likely to consider a capital gains tax waiver for global debt investors in the upcoming Union Budget, reports Economic Times.

The move will reportedly set the stage for India's inclusion in the keenly tracked global bond indices of Bloomberg-Barclays and JP Morgan.

According to the report, the waiver and resultant inclusion of Indian debt instruments in global bond indices will likely spawn significant capital flows into local debt securities, potentially driving down yields in the country.

Offshore investors are expected to start trading in select sovereign securities following their inclusion in global bond indices, which is likely to draw as much as $250 billion of inflows over the next decade and reduce India's cost of borrowing by up to 50 basis points, according to a Morgan Stanley estimate cited in the ET report.

An overseas investor is supposed to pay a short-term capital gains tax if a listed bond is sold within 12 months. The tax incidence is in the range of 30-40 per cent depending on the nature of investor.

Earlier last year, former chief economic adviser K Subramanian had said that the abolition of capital gain liabilities is perhaps the easiest path toward having Indian debt listed on Euroclear.

The global financial hubs track bond indices for parking surplus cash and waiver on short-term capital gain liabilities will help remove the final hurdle for India's inclusion in these indices.