The rupee was trading in a narrow range and fell 1 paisa to 83.70 against the US dollar in early trade on Wednesday, 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 per cent from 20 per cent, 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 per cent, 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.

Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was at 104.48, higher by 0.03 per cent.

Brent crude futures, the global oil benchmark, rose 0.38 per cent to USD 82.32 per barrel.

"It looks like that after elections the Reserve Bank has made up its mind to allow some weakness to creep into the rupee to ensure we are competitive enough for our exports," Bhansali said.

In the domestic equity market, the 30-share BSE Sensex was trading 213.90 points, or 0.27 per cent lower at 80,215.14 points. The broader NSE Nifty was down 54.80 points, or 0.22 per cent, to 24,424.25 points.

Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Tuesday as they offloaded shares worth Rs 2,975.31 crore, according to exchange data.

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