Rupee trades in narrow range against U.S. dollar in early trade

Rupee falls against dollar due to capital gains tax hike, indexation removal, FPI selling, and weak risk appetite.

The rupee was trading in a narrow range and fell 1 paisa to 83.70 against the U.S. dollar in early trade on July 24, weighed down by a weak risk appetite and dollar demand from importers.

Forex traders said the increase in capital gains tax and removal of indexation benefits announced in the FY25 Budget on Tuesday was the main reason for dollar buying as foreign investors sold stocks.

At the interbank foreign exchange market, the local unit opened at 83.69, and touched an early low of 83.70, registering a fall of 1 paisa from its previous close.

On Tuesday, the rupee declined 3 paise to 83.69 against the US dollar, after the government raised tax rates on capital gains in the FY25 Budget.

"Rupee is touching new lows daily as US dollar buying continues to be the theme. On Tuesday the increase in capital gains tax and removal of indexation benefit was the main reason for US dollar buying as FPIs sold stocks," said Anil Kumar Bhansali, Head of Treasury and Executive Director Finrex Treasury Advisors LLP.

The government on Tuesday proposed reducing the long-term capital gains tax on immovable properties to 12.5% from 20%, but removed the indexation benefits to adjust for inflation, a move experts termed as "negative" for sellers.

As per the Memorandum to the Union Budget, with rationalisation of rate to 12.5%, indexation available under section 48 of the Income Tax Act is proposed to be removed for calculation of any long-term capital gains, which is presently available for property, gold and other unlisted assets.