SEBI recommends removing long-term capital gains tax for foreign investors
The regulator has also suggested tax relief for domestic mutual fund investors to encourage switching between schemes.
The Securities and Exchange Board of India (SEBI) has recommended that the government remove the long-term capital gains (LTCG) tax for foreign investors, according to reports from Mint and Moneycontrol. The regulator is seeking to boost equity markets as foreign investor outflows in 2026 have reached ₹2.91 lakh crore, surpassing the ₹1.66 lakh crore recorded in 2025.
SEBI has also proposed that domestic mutual fund investors be exempt from LTCG tax when they sell current holdings to invest in new ones. One source noted that these proposals aim to lower the initial tax burden on foreign investors. The recommendations are not binding and the final decision lies with the government ahead of the Union Budget in February.
Currently, foreign investors face a 12.5 per cent LTCG tax on equity investments held for more than 12 months, while short-term capital gains (STCG) attract a 20 per cent tax. Investors also pay securities transaction tax (STT) and withholding tax on dividends. SEBI has previously stated that transaction costs for Indian equities are among the highest across different jurisdictions.
Finance Minister Nirmala Sitharaman said in mid-October that she was interested in discussing STT to attract capital inflows, though she did not comment on specific tax changes. Global brokerage firm Jefferies noted that reducing capital gains taxes could make the market more attractive to foreign investors and support inflows.
The Nifty 50 has fallen 10 per cent in 2026, heading towards its largest annual decline since 2011. While domestic mutual funds have provided some market support, returns for many diversified funds have stagnated over the last two years.