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Foreign Money Exodus Puts LTCG, STT on Government Table: Can Tax Relief Bring It Back?
Sentiment: NeutralHigh Priority
What Happened?
The Indian government is reviewing long-term capital gains (LTCG) and securities transaction tax (STT) as foreign investors withdraw over Rs 3 lakh crore from equities this year. A consultation meeting may be held soon to discuss potential tax reforms.
Key points
- Foreign portfolio investors have withdrawn approximately Rs 3.1 lakh crore from Indian equities in 2026, nearly double the amount withdrawn in 2025.
- The government is considering a review of the 12.5% LTCG tax rate and may consult market participants soon.
- BJP leader Gopal Krishna Agarwal emphasized the need for urgent capital markets reforms.
- SBI Research proposed abolishing LTCG tax on equities and extending the holding period from one year to two or three years.
- The effective LTCG tax rate is close to 15% after surcharges and cess.
Key insights
- If tax reforms are implemented, they could enhance India's competitiveness in attracting foreign capital.
- The government's response to foreign selling may set a precedent for future tax policies.
- A failure to address investor concerns could lead to continued capital outflows.
Why it matters
The government's potential tax reforms could influence foreign investment flows into Indian markets.
Tags
Entities
Gopal Krishna Agarwal· PersonNirmala Sitharaman· PersonSBI Research· OrganizationKPMG· OrganizationIndia· Country
Source
India Today
