SEBI has proposed exempting foreign investors from the 12.5% long-term capital gains tax while also freeing domestic mutual fund investors from taxes when switching between holdings. The regulatory push follows sustained foreign portfolio withdrawals that reached ₹2.91 lakh crore in 2026, forcing a 10% decline in the benchmark index. Beyond capital gains, foreign institutions are currently burdened by short-term taxes, securities transaction charges, and dividend withholding taxes. Finance Minister Nirmala Sitharaman has indicated openness to reviewing transaction taxes ahead of the upcoming February budget to attract foreign capital.
Key points
Regulatory proposals aim to reverse severe equity outflows by eliminating the 12.5% forei…: Regulatory proposals aim to reverse severe equity outflows by eliminating the 12.5% foreign long-term capital gains tax.
Domestic mutual fund inflows have helped cushion the market from its sharpest annual decl…: Domestic mutual fund inflows have helped cushion the market from its sharpest annual decline since 2011.
The government is evaluating adjustments to transaction costs ahead of the February Union…: The government is evaluating adjustments to transaction costs ahead of the February Union Budget to encourage capital inflows.
Sources checked by our analysis pipeline: 1
There has been growing buzz on Dalal Street over the possibility of the government considering cut in the long-term capital gains (LTCG) tax, amid sustained foreign investor outflows from the Indian stock market, which have already exceeded ₹2.34 lakh crore in 2026.
Against this backdrop, the Securities and Exchange Board of India (SEBI) has reportedly recommended that the government remove the LTCG tax imposed on foreign investors, two people with direct knowledge of the matter told Reuters.
SEBI has also proposed tax relief for domestic mutual fund investors, suggesting that they be exempt from LTCG tax when selling existing holdings to invest in new ones, the report said, citing the same sources.
Currently, foreign investors pay 12.5% LTCG tax on eligible equity investments held for more than 12 months. Short-term capital gains (STCG) on equity investments held for 12 months or less attract a 20% tax. Investors also pay securities transaction tax (STT) on trades and withholding tax on dividends.
Finance Minister Nirmala Sitharaman, speaking at the Bloomberg New Economy Forum in New Delhi last in mid-October, said she was…
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