India is rolling out a fresh set of tax changes designed to make borrowing cheaper for businesses and attract more investment into the country’s debt markets. The central government has set an ambitious goal to reduce its outstanding debts to 50% of GDP by March 2031, down from an estimated 55.6% in 2026-27. These moves signal a serious push to strengthen the country’s financial foundation while making it easier for companies to access capital.
One major shift involves raising the investment limit under a key scheme from 5% to 10% for individual portfolio investors. This opens the door wider for both domestic and international investors to put their money into Indian debt instruments. The government is also proposing a market making framework that includes access to funds and new derivative products based on corporate bond indices. Total return swaps on corporate bonds are being introduced as well, giving investors more tools to manage risk and potentially earn returns. Such measures can also influence market expectations by affecting interest rates and asset values through the interest rate channel.
Meanwhile, tax reforms are touching several areas beyond debt markets. The Minimum Alternate Tax rate dropped from 15% to 14%, though companies using the new tax regime can now set off only 25% of their MAT credits against tax liability. Starting April 1, 2026, MAT becomes the final tax with no further credit accumulation, though credits built up through March 2026 can still be used.
Securities transaction taxes have also changed. The STT on options jumped from 0.1% to 0.15%, while futures face an increase from 0.02% to 0.05%. These adjustments aim to recalibrate transaction costs across derivative markets, though traders will feel the pinch in their wallets.
Foreign investment rules got friendlier too. Non-resident individuals can now invest directly in listed Indian securities, putting them on equal footing with other portfolio investors. This move should help India integrate better into global value chains and pull in more international capital. Combined with procedural tax reforms that reduce litigation and simplify compliance, these changes paint a picture of India actively lowering barriers to investment and growth. The requirement to contest a tax demand has been lowered to 10%, making it less burdensome for taxpayers to challenge assessments. The government has targeted a revenue deficit of 1.5% of GDP for 2026-27, reflecting continued fiscal consolidation efforts alongside the planned reduction in overall debt levels.
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