Once offshore investors start trading in select sovereign securities after inclusion in global bond indices, around USD 250 billion of inflows can be expected in the next decade.

Global debt investors may get some relief in the upcoming Budget 2022 as Finance Minister Nirmala Sitharaman may consider a capital gains tax waiver, according to an Economic Times report.

If FM Sitharaman announces such measure in her Union Budget speech on February 1, it will pave the way for India’s inclusion in the global bond indices of Bloomberg-Barclays and JP Morgan, people privy to the matter told the publication.

If the waiver is announced in this year’s budget, and subsequent inclusion happens, then there could be capital inflows into local debt securities, as per the people quoted in the ET report.

Once offshore investors start trading in select sovereign securities after inclusion in global bond indices, around USD 250 billion of inflows can be expected in the next decade. This would cut India’s cost of borrowing up to 50 basis points, said the report quoting Morgan Stanley.

A global investor is supposed to pay a short-term capital gains tax if it decides to sell a listed bond within 12 months. Therefore, the tax incidence for the same ranges between 30 per cent and 40 per cent.

Removal of capital gain liabilities will ensure seamless listing for Indian debt on Euroclear. Apart from this, a waiver on short-term capital gain liabilities will be the easiest path for inclusion of India in indices tracked by global financial hubs.

While there is no official statement in this regard yet, an announcement may come in the upcoming Budget 2022.

https://www.indiatoday.in/business/budget-2022/story/budget-2022-global-debt-investors-may-get-tax-relief-1901788-2022-01-19