The official, who declined to be named, said the government will either issue a notification or an executive order, which could be later submitted to parliament for approval, according to Reuters.

The S&P BSE Sensex index spiked 636.86 points - or 1.74 per cent - to end at 37,327.36 on Thursday, and the broader NSE Nifty benchmark finished at 11,032.45, up 176.95 points - or 1.63 per cent - from the previous close. Both the indexes posted their biggest gain in 11 weeks.

The move will be to exempt the foreign portfolio investors - mainly registered as trusts - from the increase in surcharge on super rich taxpayers.

The report, suggesting withdrawal of the higher taxes on foreign investors, comes amid continuing overseas fund outflow from the markets.

In July, foreign portfolio investors pulled out a net Rs 12,419 crore from the Indian equity markets.

Analysts say any news about removal of the new higher taxes on foreign portfolio investors is positive for the markets.

"The markets primarily rose after reports of rollback of higher taxes on foreign portfolio investors surfaced today. The steep correction in Nifty also happened because of announcement of higher taxes on foreign investors in the Budget," Gaurang Shah of Geojit Financial Services told NDTV.

In the Budget 2019, the Finance Minister increased the surcharge from 15 per cent to 25 per cent on those with taxable income between Rs 2 crore and Rs. 5 crore, and from 15 per cent to 37 per cent for income above Rs. 5 crore.

The new rules are also applicable to FPIs operating as trusts or as association of persons.