SEBI has reportedly urged the government to remove LTCG tax for foreign investors and offer relief to domestic mutual fund investors.
**SEBI's LTCG Proposal For Foreign Investors**
The Securities and Exchange Board of India has recommended that the government scrap the long-term capital gains tax applicable to foreign investors, according to a Reuters report citing two people with direct knowledge of the matter. SEBI has also proposed relief for domestic mutual fund investors, suggesting they be exempted from LTCG tax when they sell existing holdings to move into new ones.
At present, foreign investors pay 12.5% LTCG on eligible equity investments held beyond 12 months, while short-term capital gains on holdings of 12 months or less attract 20%. Investors additionally bear securities transaction tax on trades and withholding tax on dividends.
**Why The Recommendation Matters**
The proposal arrives amid heavy foreign selling. FPIs pulled out another ₹34,843 crore in October, after ₹35,857 crore in September, per NSDL data. Total FPI withdrawals from Indian equities in 2026 have touched ₹2.91 lakh crore, exceeding the ₹1.66 lakh crore recorded in all of 2025. The Nifty 50 has fallen 10% this year and is headed for its worst annual decline since 2011, when it dropped 24.62%. Domestic mutual fund buying has cushioned the fall.
For businesses and compliance teams, the recommendation signals a possible shift in how capital gains are taxed for cross-border and domestic fund flows. SEBI has separately noted that transaction costs for Indian equities rank among the highest across jurisdictions, and the current LTCG and STCG rates are less competitive than some global peers, which could weigh on foreign sentiment.
Finance Minister Nirmala Sitharaman, speaking at the Bloomberg New Economy Forum in mid-October, said she was keen to hear discussions around STT as India seeks capital inflows. She did not comment on specific changes, noting the Union Budget is due in February, but called the debate healthy.
**What To Watch Next**
Jefferies has outlined three possible LTCG changes: lowering both LTCG and …
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