SEBI recommends removing long-term capital gains tax for foreign investors
The market regulator also proposed tax relief for domestic mutual fund investors to help revive India's underperforming equity markets.
The Securities and Exchange Board of India (SEBI) has recommended that the government scrap the long-term capital gains (LTCG) tax for foreign investors, according to reports by Reuters, The Times of India and Business Standard.
The regulator's proposal aims to reduce the upfront tax burden on foreign investors and revive equity markets that have underperformed compared to other emerging markets. SEBI has also suggested tax relief for domestic mutual fund investors, proposing that switching from existing holdings to other schemes should not trigger LTCG tax if the units have been held for more than a year.
The recommendations were submitted ahead of the annual Union Budget in February, though they are advisory and the final decision rests with the government. Currently, investors pay 12.5 per cent LTCG on securities held for more than a year and 20 per cent short-term capital gains tax, alongside transaction and withholding taxes.
The move follows discussions with foreign investors over the last two years. Foreign investors have withdrawn a record $31 billion from Indian stocks this year, while the Nifty 50 has fallen 4.8 per cent over the past two years, compared to a 40 per cent gain in the MSCI emerging markets index.
Brokerage firm IIFL estimated that removing the tax could increase foreign investors' returns by 2.3 percentage points. The domestic mutual fund industry currently manages assets worth Rs 82.6 trillion, with an average of Rs 30 billion flowing in monthly via investment schemes.