GCCI Urges Centre to Restore 5% Withholding Tax For FPIs In Govt Securities, Rupee Bonds

The Gujarat Chamber of Commerce & Industry (GCCI) has urged the Central Board of Direct Taxes (CBDT) and the Union Finance Ministry to restore the concessional 5% withholding tax regime for foreign portfolio investors (FPIs) investing in government securities and specified rupee-denominated bonds.

According to The Times of India, the chamber has made this request in its representation on the proposed Income Tax Act, 2025. GCCI has warned that the current higher withholding tax rate of 20% is weakening India’s position in the global debt market and reducing its appeal for foreign bond investors.

Earlier, interest income earned by eligible FPIs from government securities and specified rupee-denominated bonds was subject to a concessional tax rate of 5% under Section 194LD of the Income-tax Act, 1961. This concession expired in July 2023. After the expiry, the tax rate reverted to 20%.

According to GCCI, the higher tax rate has come at a time when India is seeking stronger participation from global investors in its sovereign and debt markets. The chamber said a competitive tax framework is important for attracting stable long-term capital into the country.

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GCCI direct tax committee chairman Jainik Vakil said that a globally competitive tax framework is necessary to attract stable long-term capital, improve liquidity in debt markets and support forex stability.

The chamber has asked the government to make the 5% withholding tax rate a permanent part of the law instead of depending on temporary provisions with sunset clauses. It said a stable tax regime will give foreign investors greater confidence while investing in Indian debt instruments.

GCCI has also recommended expanding the concessional tax regime beyond government securities and specified rupee bonds. It has suggested that the benefit should cover AAA-rated corporate bonds, infrastructure bonds and other strategically important debt instruments.

The chamber believes this will help deepen India’s corporate bond market and increase foreign participation in long-term financing.

The demand comes at a time when India is working to strengthen its role in international financial markets. Lower withholding tax on interest income is expected to improve post-tax returns for foreign investors and make Indian bonds more competitive compared to other emerging market debt options.

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