The RBI recently made a small change to how FIIs can trade in the government securities market. The central bank said that an FII holding a particular government bond cannot sell the security more than two times a year. Since withholding tax in India is very high, a large number of FIIs usually sold a G-sec just before the day of interest payment and then bought it back after the payment of interest. Since bond prices incorporate interest payments, FIIs used to make profits using this route but hardly paid any tax. Since the government pays interest on G-secs on a half-yearly basis, by changing the rules of FII trading in the bond market, it expects to see some extra revenue inflows into the exchequer through this route.
TOI
