Centre Weighs LTCG Tax Cut To Attract Foreign Investors Amid Heavy FPI Outflows

New Delhi, Oct 27 (KNN) The Centre is considering measures to improve India’s tax appeal to foreign investors, including a possible LTCG (Long-Term Capital Gains) tax cut, amid heavy FPI outflows. 

The government is reviewing tax structures in South Korea, Taiwan and Brazil, with SEBI reportedly presenting its recommendations to the Finance Ministry.

India’s tax regime is seen as less competitive than some Asian markets. Taiwan, for instance, exempts listed securities from LTCG tax but levies a 0.3 per cent securities transaction tax on sales by individual investors.

LTCG Tax Changes May Be Considered In Budget 2027-28

The Finance Ministry has been exploring ways to make the tax regime more attractive, with foreign investors seeking lower LTCG taxes ahead of Budget 2026-27. 

Changes could be considered in Budget 2027-28, while the government weighs investor concerns against tax parity and round-tripping risks, reported Business Today.

Currently, LTCG on listed equities is taxed at 12.5 per cent, with a Rs 1.25 lakh exemption, while short-term gains attract 20 per cent tax, up from 15 per cent before Budget 2024-25.

STT Also Under Discussion

Securities transaction tax (STT) applies to the purchase and sale of securities on recognised exchanges. Finance Minister Nirmala Sitharaman’s October 13 remarks welcoming suggestions on its removal have renewed debate over the tax regime.

FPIs have pulled over Rs 3.04 lakh crore from Indian equities so far this year, raising concerns over the market’s competitiveness.

Experts Suggest Holding-Period-Based Taxation

Deloitte India partner Rohinton Sidhwa said speculation over changes to long-term capital gains (LTCG) tax for foreign portfolio investors (FPIs) centred on excluding exchange gains or losses from tax calculations or introducing a holding-period-based tax rate.

He favoured a sliding tax scale, saying it could encourage longer investment periods. While foreign investor outflows reflect the relative appeal of other markets, concerns over India’s tax competitiveness have also fuelled calls for measures to improve investor sentiment.

(KNN Bureau)