Finance Minister Nirmala Sitharaman has acknowledged the escalating concerns among equity investors and foreign portfolio investors (FPIs) regarding the current taxation structure, particularly the long-term capital gains (LTCG) tax. Speaking at the Financial Express Leadership Awards on Monday, the minister expressed her appreciation for the "sensitivity and the anxiety" prevailing among market participants.
Sitharaman's remarks come as the government prepares for Budget 2027, with increasing demands from various quarters for relief on LTCG tax. She noted that while India's taxation framework remained largely consistent even during periods of strong foreign investment inflows, the current environment has shifted significantly, marked by substantial FPI outflows from Indian equities.
Calls for LTCG Tax Relief
The minister highlighted the changed circumstances, stating, "Circumstances have changed. Challenges have grown. More net FII outflows have happened." She added that while FIIs have begun to return, the voices of concern have grown louder. Sitharaman affirmed her commitment to considering these issues, emphasizing the importance of capital for sustaining India's seven-plus percent growth trajectory.
This acknowledgment follows a report indicating that the markets regulator, SEBI, has proposed removing the long-term capital gains tax for foreign portfolio investors. Currently, FPIs are subject to a 20% short-term capital gains tax and a 12.5% long-term capital gains tax on qualifying listed equity investments, in addition to applicable surcharges and cess.
Impact of Foreign Fund Outflows
The significant outflows from Indian equities by foreign investors have prompted questions about the attractiveness of the Indian market compared to global alternatives. Advocates for tax relief argue that easing the LTCG burden could help stem these outflows and attract fresh capital, crucial for economic stability and growth. Sitharaman concluded her statement by saying, "I wouldn't want to say more at this stage, but I recognise the voice," signaling that the matter is under active consideration.