India Scraps FII Capital Gains Tax on G-Secs

India Scraps FII Capital Gains Tax on G-Secs: Bond Markets Surge India has removed capital gains tax on Government Securities for Foreign Institutional Investors, and the market didn't wait around to price it in. [PNB Gilts](/stock/PNBGILTS) (NSE: PNBGILTS) shot up over 6% on the news, the sharpest single-session move for the stock in months. That reaction tells you something. When a primary dealer in sovereign debt jumps that hard, the market is saying this policy shift is real, it's material, and it changes the math on Indian G-Secs for global money. The logic is straightforward. Foreign investors holding Indian government bonds were previously subject to capital gains tax on price appreciation, which ate directly into returns and made Indian debt less competitive versus comparable emerging market paper. Removing that friction doesn't just improve net yields. It resets the entire risk-reward calculation for allocators sitting in London, Singapore, and New York who've been underweight Indian fixed income. This isn't a small tweak. India's government bond market is one of the largest in Asia, yet foreign ownership remains thin relative to peers like Indonesia or South Africa. That gap has structural causes, and tax treatment was one of the biggest. That gap may now start to close. What the PNB Gilts Surge Actually Signals The 6%-plus move in [PNB Gilts](/stock/PNBGILTS) is the headline, but the more important number is what happens to bond yields from here. If foreign inflows into G-Secs accelerate, and there's a credible case they will, the 10-year benchmark yield could compress meaningfully from its current 6.9-7.1% range. Every 25 basis point drop in the 10-year yield reduces government borrowing costs by thousands of crores annually on new issuances. That's the channel into PSU banks. [State Bank of India](/stock/SBIN) (NSE: SBIN) and [Punjab National Bank](/stock/PNB) (NSE: PNB) both carry large G-Sec portfolios on their books. SBI alone holds over ₹12 la...