Govt May Cut 12.5% LTCG Tax, $250,000 LRS Limit To Curb Forex Outflow

The government is preparing a set of measures to reduce pressure on India’s current account deficit as the rupee weakens and foreign investors continue pulling money out of Indian markets.

According to a report by Financial Express, the proposed measures could be announced within a week.

One of the key proposals under consideration is reducing the long-term capital gains (LTCG) tax on listed equities and government bonds.

The government is also considering lowering the withholding tax on interest income earned by foreign investors from government securities.

Tax Relief May Help Attract Foreign Investors

Currently, foreign investors pay 12.5 percent LTCG tax on listed shares and bonds held for more than 12 months.

In addition, foreign portfolio investors are charged around 20 percent withholding tax on interest earned from government bonds.

Reports said the withholding tax was only 5 percent until 2023 and is now among the highest rates imposed globally.

Officials believe reducing these taxes could encourage foreign investors to retain money in Indian markets and reduce dollar outflows from the economy.

Foreign portfolio investors have reportedly withdrawn more than $24 billion from Indian equities in 2026 so far, compared to $19 billion during the entire year of 2025.

Government Also Reviewing LRS Limit

Apart from tax changes, the government is also considering reducing the Liberalised Remittance Scheme (LRS) limit.

At present, individuals are allowed to remit up to $250,000 abroad every year for purposes such as education, travel, investments and property purchases.

Officials are reportedly examining whether the limit should be temporarily reduced by half.

During FY26, Indians remitted nearly $29 billion overseas under the LRS route.

The move is aimed at controlling foreign exchange outflows and reducing pressure on the rupee.

Gold Imports May Face More Restrictions

The government is also studying additional curbs on gold imports.

Recently, import duties on gold and silver were raised from 6 percent to 15 percent.

The increase came shortly after Prime Minister Narendra Modi appealed to citizens to avoid buying gold for one year.

Officials believe reducing gold imports can help lower the country’s import bill and support the current account balance.

RBI And SEBI May Ease Investment Rules

Reports also suggest that the Reserve Bank of India and Securities and Exchange Board of India may introduce regulatory measures to make entry and exit easier for foreign investors in Indian capital markets.

Commerce Minister Piyush Goyal had recently said the government was working on multiple steps to reduce the economic impact of the West Asia conflict.

Experts believe the proposed measures are aimed at stabilising the rupee, attracting foreign investment and managing rising external pressures on the economy.