The proposed reforms target both international funds and local retail participants, recommending tax-free mutual fund scheme switches for holdings kept past twelve months. Foreign portfolios are presently subject to an existing 12.5% long-term levy alongside transaction taxes and dividend withholding charges. If accepted by the government, the adjustments would help stem persistent outflows and narrow the recent performance gap with broader developing markets.
Key points
Removing the capital gains tax could boost foreign investor returns by an estimated 2.3 p…: Removing the capital gains tax could boost foreign investor returns by an estimated 2.3 percentage points according to brokerage firm IIFL.
Domestic mutual fund holders would benefit from tax exemptions when switching schemes aft…: Domestic mutual fund holders would benefit from tax exemptions when switching schemes after holding units for over one year.
High equity transaction costs across Indian jurisdictions have prompted formal regulatory…: High equity transaction costs across Indian jurisdictions have prompted formal regulatory recommendations to the federal government ahead of the budget.
Sources checked by our analysis pipeline: 1
India's markets regulator has recommended the government remove the long-term capital gains (LTCG) tax imposed on foreign investors, two sources with direct knowledge of the matter said, as India looks to galvanise its underachieving equity markets.
The Securities and Exchange Board of India (SEBI) has also proposed tax relief for domestic mutual fund investors, suggesting they be exempt from LTCG if they are selling existing holdings to invest in new ones, the sources said.
The recommendations, which come months before the annual federal budget in February, are not binding and a final call rests with the government.
India's equity market has lagged emerging market peers over the past two years. Foreign investors have sold a record $31 billion in Indian stocks this year and overseas investments by retail investors have surged as returns have stagnated.
SEBI's recommendations follow scores of meetings held by the regulator with foreign investors over the last two years as selling persisted, putting pressure on the Indian currency.
One consistent piece of feedback from investors has been the need to change how India taxes them, the…
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