SBI Research urges tax reforms to support rupee and attract capital

SBI Research has recommended several structural tax reforms to support the Indian rupee and attract foreign capital inflows, noting that the Reserve Bank of India’s ability to support the currency has limits.

To encourage longer-term equity investments and mitigate the impact of foreign investor withdrawals, the report suggests abolishing long-term capital gains tax on equity and implementing a mandatory holding period of two to three years. This is intended to anchor “hot money” flows within the equity segment.

Additionally, the research firm called for greater clarity regarding withholding taxes on external commercial borrowings (ECBs), which currently range from 5% to 20%. Providing clearer rules on tax provisions and Double Taxation Avoidance Agreement (DTAA) benefits is seen as essential for improving investor confidence.

To further bolster foreign exchange, SBI Research proposed that export earnings be repatriated to India within six months, with extensions permitted only for genuine business requirements. These recommendations come in response to significant outflows from foreign portfolio investors, which included over Rs 2.61 lakh crore in 2026 alone.