Govt seeks investor and expert views on LTCG and STT as it reviews capital
Benchmarks Nifty22,746.65-6.55FEATURED FUNDS★★★★★Motilal Oswal Midcap Fund Direct-Growth5Y Return18.32 % Invest NowFEATURED FUNDS★★★★★UTI Aggressive Hybrid Fund Regular Plan-Growth5Y Return8.45 % Invest NowEnter search…
The government has initiated a reassessment of long-term capital gains tax and securities transaction tax. Stakeholders, including investors and tax experts, have been consulted for their views. The debate has gained momentum due to significant outflows of foreign portfolio investments. Current taxation methods may affect the attractiveness of Indian equities compared to global markets. The upcoming budget provides an opportunity to revisit these tax regulations.
Listen to this article in summarized format
Loading...×New Delhi: The government has sought the views of investors, market functionaries and tax experts on long-term capital gains (LTCG) tax and securities transaction tax (STT) as it begins a reassessment of capital market levies amid an exodus by overseas investors, people familiar with the development said.This follows finance minister Nirmala Sitharaman's response to a question regarding the levies at an event in the national capital on October 13. "There's a lot of debate," she had said.
Also read: Tax matters, as does capital: Is it time for India to reconsider its LTCG tax policy on listed equities amid rising global competition?
"We are very close to the budget, and preparation has started. It may not be the best time for me to say what I will or will not consider," the minister had said, adding that the issue had also come up in her conversations with investors both in India and abroad.
There have been calls for a relaxation of these levies as a means to shore up the markets, and attract foreign capital, which has declined.
Live Events
LTCG Mopup 1.3 Lcr in FY25
There is a boom in artificial intelligence-led stocks overseas.
The finance minister's comment had led to a rise in stocks. The Indian stock market has lost $924 billion in market capitalisation since its September 2024 peak.
Any decision on LTCG or STT will have to take into account the revenue impact, especially with the rise in fertiliser subsidy bills due to the West Asia conflict and the funding required for large social sector programmes, said the people cited.
Making wavesThe idea is to examine the concerns of stakeholders and the suggestions they have, said one of them.
In FY25, total LTCG collection was Rs 1.29 lakh crore, almost twice the Rs 72,249 crore collected in the preceding year.
Market participants have raised the matter of LTCG and STT being simultaneously levied, flagging it as double taxation.
With large foreign portfolio investment (FPI) outflows from equities this year, the clamour for changes to the LTCG regime have intensified.
India had scrapped long-term capital gains tax and withholding tax on interest earned on government securities held by FPIs in June this year, raising hopes of relief for equities as well.
Some opposition voices have pointed that doing away with the levies would substantially erode the pool of taxes shared with states.
Currently, long-term capital gains, which is levied on stocks held for more than 12 months, is 12.5% for both domestic and foreign portfolio investors. Including cess and surcharges, this comes to nearly 15%. Additionally, equity investments face securities transaction tax (STT) at 0.1% each on the buyer and seller and stamp duty of 0.015% on the buyer.
STT collections in FY26 amounted to Rs 57,522 crore. Collections rose 52% to Rs 46,840 crore during the period from April 1 to October 14 from the year before.
Tax practitioners said Indian capital markets need to be competitive with those in other countries.
"In today's highly volatile geopolitical environment, India needs to compete with the entire spectrum of countries including the US, UK, Singapore, Hong Kong, South Korea and Taiwan, all of which do not tax non-residents on capital gains in securities traded in these jurisdictions," said Sudhir Kapadia, senior advisor, KPMG Assurance and Consulting Services LLP.
India remains an outlier with capital gains tax and STT levied on the same transaction. Scrapping capital gains tax on FPIs in lieu of an increase in STT would make the move revenue neutral, he said. This will remove a key area of transaction level friction faced by FPIs on their capital market transactions in India. It would also discourage high-frequency trading by some FPIs, Kapadia said.
While global trends, macroeconomic factors, relative valuations and corporate earnings remain key drivers of foreign investor flows, the cumulative burden of capital gains tax and STT also influences the attractiveness of Indian equities.
"India should undertake a holistic review of the tax burden on foreign portfolio investors as foreign portfolio investors do not suffer CGT levy globally in any key market but have a dual levy of LTCG and STT in India," said Sameer Gupta, EY India tax leader.
Equally important is ensuring tax certainty for foreign investors in the aftermath of the Tiger Global judgement, with clear and consistent application of treaty benefits in keeping with India's international treaty commitments, particularly for grandfathered investments, Gupta said.
He was referring to January's Supreme Court ruling that capital gains from the $1.6 billion that Tiger Global got for selling its stake in Flipkart to Walmart would be taxable in India, disallowing it from claiming exemption under the India-Mauritius Double Taxation Avoidance Agreement (DTAA).
Also read: SBI Research calls for abolition of LTCG tax on equities to boost foreign capital inflows
The upcoming budget offers an opportunity to revisit the tax regime.
"With foreign flows into Indian equities under pressure from elevated global interest rates, competing markets and currency volatility, Budget 2027 offers an opportunity to revisit how listed equities are taxed," said Pratik Jain, partner, Price Waterhouse & Co. LLP. India's budget is typically presented on February 1.
STT had been introduced as a substitute for LTCG not an addition to it. "A zero LTCG rate for longer holding periods, or allowing STT to be set off against capital gains tax, would reward patient capital," Jain added.
Add as a Reliable and Trusted News Source Add Now!
(You can now subscribe to our Economic Times WhatsApp channel)
Read More News onSecurities transaction taxCapital market tax reformsForeign portfolio investorsInvestment tax in IndiaBudget 2027LTCG tax reviewTax certainty for foreign investorsFinance Minister Nirmala SitharamanIndian stock market
(You can now subscribe to our Economic Times WhatsApp channel)
Read More News onSecurities transaction taxCapital market tax reformsForeign portfolio investorsInvestment tax in IndiaBudget 2027LTCG tax reviewTax certainty for foreign investorsFinance Minister Nirmala SitharamanIndian stock market Prime ExclusivesInvestment IdeasStock Report PlusePaperWealth Edition
KYC and KYB: Inside Damani’s Avenue Supermarts that refuses to charge more – Part 1 of 3
Will oil turn into a lingering problem? Is the world economy, India, or the market prepared?
KYB and KYC: Business behind the wealth creator called ‘Divi’s Lab’ – Part 2, concluding
KYB and KYC: Business behind the wealth creator called “Divi’s Lab” – Part 1
The global business of promising more
One company, 2 words. Bond yield and CDS: Will they decide the fate of global markets?
- 1
- 2
- 3
& personalised newslettersLogin NowUnlimited AccessStarting @ Rs120/monthGet access to exclusive stories, expert opinions &
in-depth stock reportsSubscribe NowET
Unlock Access to All Exclusives with ETPrime FREE TRIAL
15 Days Free: Unlock All ETPrime Exclusives, Market Tools & ePapers
Trial offer expiring in00 : 05 : 00
I'd rather pay ₹2599 nowUh-oh! This is an exclusive story available for selected readers only.
Worry not. You’re just a step away.
Prime Account Detected!
It seems like you're already an ETPrime member with
Login using your ET Prime credentials to enjoy all member benefits
Log out of your current logged-in account and log in again using your ET Prime credentials to enjoy all member benefits.
Unlock ETPrime's Exclusive Stories Today!
Big Price Drop! Flat 40% Off
Student Only OfferAlready a Member? Sign In nowAlready a Member? Sign In nowAlready a Member? Sign In nowOffer Exclusively For You
Save up to Rs. 700/-
ON ET PRIME MEMBERSHIP
Avail OfferOffer Exclusively For You
Get 1 Year Free
With 1 and 2-Year ET prime membership
Avail OfferOffer Exclusively For You
Get 1 Year Free
With 1 and 2-Year ET prime membership
Avail OfferOffer Exclusively For You
Get Flat 40% Off
Then ₹ 1749 for 1 year
Avail OfferOffer Exclusively For You
ET Prime at ₹ 49 for 1 month
Then ₹ 1749 for 1 year
Avail OfferSpecial Offer
Get flat 40% off on ETPrime
Avail OfferAvail OfferClaim NowAlready a Member? Sign In nowNeed Assistance?
Connect with an ETPrime expert for personalized support and guidance
+91 9484700004'; }); } if(listing) { var h3 = "You tried reading " + listArr.length + " locked stories in the past " + threshold + " days.", h4 = "Become an ET Prime member and don't miss out on these exclusive stories."; var html = '' + h3 + '
' + h4 + '
- ' + listing + '
What’s Included with
ETPrime Membership
1Exclusive Insights That Matter
Uncover the truth with our investigative stories
Make strategic moves using the real-world case studies
Read industry-specific stories to identify emerging trends
Spot opportunities with in-depth insights that matter
Trump temper on H-1B visas is forcing Indians to do these things to stay put in US
What Adani’s US indictment means for India Inc’s overseas fundraising
Why veterans like Reliance, L&T are on acquisition spree? Aswath Damodaran has an answer.
Will China’s dollar bond sale in Saudi Arabia trump the US in financial world?
Huawei launches its own OS to compete with Google and Apple. But can it win beyond China?
The problem with lab grown diamonds
Why a falling rupee is a better option for the economy
A list of top 20 momentum stocks that have delivered massive returns in one year
2Invest Wisely With Smart Market Tools & Investment Ideas
Alpha Trade
Get daily trade ideas from SEBI-registered research analysts.
Investment Ideas
Grow your wealth with stock ideas & sectoral trends.
Stock Reports Plus
All-in-one stock research with Stock Score, peer comparison & key signals.
BigBull Portfolio
Get to know where the market bulls are investing to identify the right stocks.
Stock Analyzer
Check the score based on the company's fundamentals, solvency, growth, risk & ownership to decide the right stocks.
Market Mood
Analyze the market sentiments & identify the trend reversal for strategic decisions.
Stock Talk Live at 9 AM Daily
Ask your stock queries & get assured replies by ET appointed, SEBI registered experts.
3Stay informed anytime, anywhere with ET ePaper
ePaper - Print View
Read the PDF version of ET newspaper. Download & access it offline anytime.
ePaper - Digital View
Read your daily newspaper in Digital View & get it delivered to your inbox everyday.
Wealth Edition
Manage your money efficiently with this weekly money management guide.
TOI ePaper
Read the PDF version of TOI newspaper. Download & access it offline anytime.
Deep Explainers
Explore the In-depth explanation of complex topics for everyday life decisions.
Health+ Stories
Get fitter with daily health insights committed to your well-being.
Personal Finance+ Stories
Manage your wealth better with in-depth insights & updates on finance.
5Enjoy Complimentary Subscriptions From Top Brands
Stream new documentaries from all across the world every day.
Stories you might be interested in
Figures reflect the source report and its stated period. This article is for information and is not investment advice.
