The market regulator's recommendations aim to lower the upfront tax burden to revive equity markets following a massive foreign capital outflow. Over the past two years, the benchmark Nifty 50 declined 4.8% while the broader MSCI emerging markets index surged by 40%. Brokerage IIFL estimates that abolishing the capital gains tax could lift foreign investor returns by 2.3 percentage points. Additionally, the measures seek to encourage domestic retail savers to keep their assets within the nation's mutual fund ecosystem.
Key points
The regulator proposed eliminating the long-term capital gains tax for foreign investors…: The regulator proposed eliminating the long-term capital gains tax for foreign investors to revitalize underperforming equity markets.
Switching between mutual fund schemes would no longer trigger capital gains tax if units…: Switching between mutual fund schemes would no longer trigger capital gains tax if units are held over a year.
Lowering the heavy tax structure aims to boost returns and curb persistent foreign capita…: Lowering the heavy tax structure aims to boost returns and curb persistent foreign capital outflows.
Sources checked by our analysis pipeline: 1
The buzz around removal of long-term capital gains (LTCG) tax on equities is gaining traction, with the market regulator also urging the government to scrap it. The Securities and Exchange Board of India (SEBI) has reportedly requested the government to consider scrapping LTCG tax levied on foreign investors.
The proposal comes as authorities look for ways to revive India's equity markets, which have been performing below the level of their emerging market counterparts.
According to a Reuters report, SEBI has also suggested extending tax relief to domestic mutual fund investors. Under its proposal, investors switching from existing mutual fund holdings to other schemes would not have to pay LTCG tax on the transaction, sources quoted in the report said.
The recommendations have been submitted ahead of the annual Union Budget scheduled for February. However, they are advisory in nature, and the final decision on whether to accept them rests with the government.
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Indian equities have underperformed other emerging markets over the past two years. Foreign investors have withdrawn a record $31 billion from Indian stocks so far…
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