SEBI recommends removing LTCG tax for foreign investors
The regulator also proposed tax relief for domestic mutual fund investors switching between schemes to boost market attractiveness.
The Securities and Exchange Board of India (SEBI) has recommended that the government scrap long-term capital gains (LTCG) tax for foreign investors. According to reports from Mint, Moneycontrol and Times Now, the regulator has also proposed tax relief for domestic mutual fund investors who switch between schemes.
These suggestions were made to the government as part of SEBI's pre-Budget submissions before the Union Budget in February 2027. The proposals are non-binding, and the Finance Ministry will make the final decision.
Currently, foreign investors pay a 12.5 per cent LTCG tax on equity investments held for more than 12 months. They also face a 20 per cent short-term capital gains tax on holdings of 12 months or less, alongside securities transaction tax and dividend withholding tax. SEBI noted that transaction costs in India are among the highest across jurisdictions.
The regulator's move follows a period where foreign investors sold a record $31 billion in Indian stocks in 2026. SEBI also suggested that domestic mutual fund investors should be exempt from LTCG tax when moving money between schemes, provided the original investment was held for over a year.
Currently, switching schemes is treated as a redemption and a fresh investment, which triggers tax. If the proposal is accepted, it could allow investors to realign portfolios without immediate tax liabilities. Domestic mutual funds currently manage assets worth ₹82.6 trillion.