Finance Minister Nirmala Sitharaman has acknowledged significant concerns among equity investors, particularly foreign portfolio investors (FPIs), regarding India's current taxation framework and recent capital outflows. Speaking at the Financial Express Leadership Awards 2026, the Minister addressed questions about potential incentives for FPIs in the upcoming Budget 2027.
Calls for Tax Review Amid Outflows
The Finance Minister's comments come amidst increasing demands for the removal of long-term capital gains (LTCG) tax, which has been a point of contention for foreign investors. Earlier reports indicated that the markets regulator SEBI had proposed scrapping the LTCG tax for FPIs, a move designed to enhance the attractiveness of Indian markets.
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 surcharge and cess.
Changing Investment Landscape
Sitharaman noted that while India experienced strong foreign investment inflows in 2023-24 under a similar tax regime, the current environment presents new challenges. She recognized a shift in circumstances, with substantial net FPI outflows from Indian equities, though inflows have recently begun to resume.
"The taxation structure was what it is today, even in 2023-24, when we had good inflow into the country... 2023-24 saw the highest inflow. The taxation was similar even then. Nothing different was done for drawing investments," Sitharaman stated. However, she added, "But of course, the situation is very different now. Circumstances have changed. Challenges have grown. More net FII outflows have happened."
"I'll consider all this, because at a time where our growth is very important, where people are putting their very best, that we are able to see sustained seven-plus growth. In order to keep that intact, we need capital," the Finance Minister affirmed, concluding, "I wouldn't want to say more at this stage, but I recognise the voice."
Her remarks suggest that the government is closely evaluating the impact of the tax structure on capital formation crucial for sustaining India's economic growth trajectory.