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Will Removing LTCG Tax Attract Foreign Investors Back to India?
Sentiment: NeutralHigh Priority
What Happened?
India's stock market has struggled for over two years, with the long-term capital gains (LTCG) tax being a significant concern for foreign investors. Calls for its removal are growing as experts believe it could enhance India's appeal to global capital.
Key points
- India's stock market hasn't reached a new closing high in over two years.
- The LTCG tax was introduced in 2018 and applies to both domestic and foreign investors.
- LTCG tax is 12.5% for investments held over 12 months, with an annual exemption of Rs 1.25 lakh.
- Foreign Portfolio Investors (FPIs) withdrew $19 billion in 2025 and about $30 billion in 2026.
- Experts suggest removing LTCG could improve India's attractiveness to foreign investors.
- Finance Minister Nirmala Sitharaman has acknowledged concerns regarding the LTCG tax.
Key insights
- Removing LTCG could signal India's intent to attract more foreign capital.
- Abolishing LTCG may stabilize the rupee by reducing capital outflows.
- Tax reform alone may not reverse the trend of foreign investor withdrawals without addressing other economic factors.
Why it matters
The potential removal of the LTCG tax could significantly influence foreign investment decisions in India.
Source
Times of India
