Tax Relief

Finances 2022: World debt buyers can get tax breaks

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

Union Minister for Finance and Corporate Affairs Nirmala Sitharaman with Finance Minister Tarun Bajaj during a press conference after the 46th GST Council meeting in New Delhi. (Photo: PTI)

According to a report by the Economic Times, Finance Minister Nirmala Sitharaman may consider a capital gains tax exemption if global bond investors could enjoy some relief in the upcoming 2022 budget.

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

If the waiver is announced in this year’s budget and subsequently incorporated, there could be capital inflows into local debt, according to people quoted in the ET report.

Once offshore investors start trading selected government securities after inclusion in global bond indices, inflows of around USD 250 billion can be expected over the next decade. This would lower India’s borrowing costs by up to 50 basis points, the report said, citing Morgan Stanley.

A global investor is said to pay a short-term capital gains tax if they decide to sell a listed bond within 12 months. Therefore, the tax incidence for the same is between 30 and 40 percent.

The elimination of capital gains liabilities will ensure a seamless listing of Indian debt on Euroclear. That being said, the easiest way to get India included in indices tracked by global financial centers will be to forego short-term capital gains liabilities.

Although there is no official statement on this yet, an announcement could come in the upcoming 2022 budget.

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