Tax Experts Seek LTCG Review and Rupee Relief for Foreign Investors in India Equities
India equity taxation is back in focus as tax experts urge the government to review capital gains taxation, improve tax certainty and address the effect of rupee depreciation on foreign investors. Finance Minister Nirmala Sitharaman has said she is open to suggestions on the taxation of equities, including long-term capital gains (LTCG) tax and the securities transaction tax (STT). No specific changes have been announced.
Competing Markets and Revenue Trade-Offs
Dinesh Kanabar, Chairman and CEO of Dhruva Advisors, said the government has received several representations on India's equity taxation framework. A key concern is how India compares with markets such as South Korea, Taiwan, Vietnam and Brazil. India levies both capital gains tax and STT, while some competing markets offer exemptions on long-term capital gains. That raises questions about whether the structure affects India's ability to attract foreign capital.
| Indicator | Reading | Change / Signal |
|---|---|---|
| Equity capital gains tax collections (year ended March 2025) | About ₹1.3 lakh crore | Includes listed and unlisted shares and mutual funds |
| STT collections (FY26) | About ₹53,000 crore | Transaction tax base |
| Tax changes announced | None | Debate ongoing |
Kanabar said the government must weigh the revenue implications of any change against the potential gains from better investor sentiment and stronger fund inflows. He said reducing or removing capital gains tax on equities would leave a significant revenue shortfall that a higher STT alone could not offset, and that a revenue-neutral outcome is not possible. In his view, the finance ministry needs to assess whether improved confidence and inflows would justify the loss.
Foreign Investors Seek Currency Relief and Certainty
Sunil Badala, Partner and Head of Tax at KPMG India, said foreign portfolio investors (FPIs) have raised concerns about how rupee depreciation affects their returns. An investment can show a gain in rupee terms yet deliver a lower return, or a loss, once converted back into dollars.
Badala suggested restoring a provision that would let eligible foreign investors calculate capital gains in foreign currency terms, taking exchange-rate movements into account. Under the earlier framework, capital gains for foreign investors were computed in dollar terms, and the provision was later removed in a simplification of tax rules. He said restoring it could help regardless of whether the broader capital gains regime changes. He also stressed that overseas investors want consistency and certainty rather than frequent rule changes.
Sovereign and Pension Funds
Kanabar said the government could also examine the tax treatment of sovereign wealth funds and pension funds investing in India. Some of these investors may pay no tax in their home countries, so Indian capital gains tax becomes an added cost that reduces returns. Requests have been made to consider exemptions for them, alongside the demand for currency-related relief. Any change would need to be weighed against potential revenue loss and the goal of keeping the tax framework competitive and predictable.
Market and Sector Impact
The Sensex rose 1,109.10 points, or 1.54%, and the Nifty 50 gained 1.60% on October 13, 2026, with much of the advance coming in the final hour after Sitharaman said she would hear views on LTCG taxation. Kotak AMC's Nilesh Shah has also urged the government to review the STT and capital gains burden on investors.
What to Watch
The next steps depend on how the government evaluates these representations. Track whether any formal proposal on LTCG, STT or foreign-currency computation of gains emerges as preparation for the next Union Budget advances.