SEBI recommends removing LTCG tax for foreign investors
The regulator also proposed tax relief for domestic mutual fund investors to encourage staying invested in the market.
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 The Economic Times, Moneycontrol and Mint.
The regulator has also suggested that domestic mutual fund investors should be exempt from LTCG when they sell current holdings to move into new ones. These non-binding proposals come ahead of the federal budget in February.
The move follows a period where Indian equity markets have trailed emerging market peers. This year, foreign investors have offloaded $31 billion worth of Indian stocks, while retail investors have increased overseas investments as local returns have stalled.
One source stated that the proposals intend to lower the initial tax load on foreign investors. SEBI has previously noted that transaction costs for Indian equities are among the highest globally.
Currently, investors face a 12.5% LTCG tax for securities held over a year and a 20% short-term capital gains tax. Brokerage firm IIFL estimated that removing the LTCG tax could increase returns for foreign investors by 2.3 percentage points.
To support domestic investors, SEBI proposed that switching between mutual fund schemes should not be taxed if units are held for more than one year. Indian mutual funds currently manage Rs 82.6 lakh crore in assets.