India considers restructuring equity long-term capital gains tax

The Indian government is reportedly considering a restructuring of the long-term capital gains (LTCG) tax on equities to enhance the competitiveness of the domestic market. The review aims to make Indian equities more attractive to both domestic and foreign investors, particularly as foreign portfolio investment (FPI) outflows reached ₹3.1 lakh crore in 2026.

Currently, LTCG on listed shares is taxed at 12.5% without indexation benefits for gains exceeding ₹1.25 lakh per financial year. The government is evaluating the current framework against the tax rates of other major economies, noting that several nations, including the US, UK, Singapore, and Japan, do not levy capital gains tax on equities.

Discussions involving the Securities and Exchange Board of India (SEBI), the Central Board of Direct Taxes (CBDT), and various banking officials have focused on the implications of the current tax structure on capital outflows. One proposal under consideration suggests calculating LTCG for foreign investors in dollar terms rather than rupees to account for currency depreciation.