Indian government discussions on capital gains tax

Indian Finance Minister Nirmala Sitharaman has indicated that the government is considering suggestions regarding the potential removal of Long Term Capital Gains (LTCG) tax during pre-budget discussions. This follows concerns from investors regarding how taxes on profits impact real earnings and significant outflows from the Indian stock market, with Foreign Portfolio Investors withdrawing 44,166 crore rupees in October.

Economists at SBI Research have formally suggested abolishing the LTCG tax and increasing the required investment holding period to two or three years to stabilize capital flows and reduce pressure on the Indian rupee.

Speaking at the Bloomberg New Economy Forum, Sitharaman signaled openness to discussing changes to capital gains taxation and the securities transaction tax (STT). While she did not promise specific changes, she noted that the government is listening to concerns from domestic and international stakeholders regarding whether India’s capital market framework remains competitive. Following these remarks, the Sensex rose by 1,109 points.

More recently, Sitharaman attributed recent weakness in India’s equity market—with benchmark indexes falling nearly 12% since January—to excess liquidity and the ease with which investors can exit positions. She identified sustained capital outflows as a significant risk heading into 2027, noting that capital is flowing toward the United States and sectors linked to the artificial intelligence boom. Data shows foreign portfolio investors have sold more than $33 billion in Indian equities so far this year. However, she maintained that economic fundamentals remain sound, noting that domestic capital remains resilient, with Indian equity mutual funds recording net inflows every month since March 2021.