The Indian rupee on Tuesday (21 April) came off the tax shock-driven low of the previous day as exporters cashed their dollar stocks after sharp gains in the greenback.
The USD/INR pair slipped to 62.75 from Monday's close of 63.11, further off the previous day's intra-day high of 63.17, which was its highest since 8 January.
The sharp rise in the pair over Friday and Monday had weakened the rupee by 1.2% against the dollar and at Tuesday's low of the pair, the Indian unit has recovered 0.6%.
The surprise government move over the weekend to issue notices to several foreign firms asking them to pay tax dues was the main drag on the rupee over Monday.
Another development in the market that weighed on the rupee was Indian pharmaceutical firm Sun Pharma coming under selling pressure as its Japanese stake holder Daiichi Sankyo offloaded its entire stake through multiple block deals.
Sun Pharma shares fell more than 10% on the announcement adding to the pressure on the rupee as Daiichi repatriating its proceeds will increase demand for the dollar.
According to the latest official data, foreign investors pumped in more than $3bn in the Indian capital markets last month, and total foreign inflows during the first quarter of 2015 touched $13bn.
The dollar rally since Friday (17 April) and month-end dollar demand form oil importers are also weakening the rupee.