India's tax treatment on equity transactions remains a complex and evolving area, marked by numerous policy changes over the years. Recent comments from Finance Minister Nirmala Sitharaman, indicating a review of long-term capital gains (LTCG) tax suggestions, have reignited hopes for new policy measures. This comes against a backdrop of significant foreign investment outflows from Indian equity markets.
Experts consistently emphasize that tax certainty and predictability are crucial for attracting and retaining investors. Rohinton Sidhwa, Partner at Deloitte India, noted that while each policy change might have a rationale, the cumulative effect of repeated adjustments to rates, holding periods, indexation, and exemptions significantly impacts investment models and exit strategies.
A History of Policy Shifts
The journey of India's capital gains tax on securities has been dynamic:
- 2004-05 Budget: Then-Finance Minister P. Chidambaram abolished LTCG on securities transactions, replacing it with a Securities Transaction Tax (STT) of 0.15%. Short-term capital gains (STCG) were reduced to a flat 10%.
- 2008-09 Budget: Chidambaram increased the STCG rate to 15% and introduced a commodities transaction tax. STT rates were later reduced to 0.1% and then 0.01%.
- 2018-19 Budget: Finance Minister Arun Jaitley reintroduced LTCG on listed equities. Gains exceeding ₹1 lakh were taxed at 10% without indexation, though gains up to January 31, 2018, were grandfathered.
- 2024-25 Budget: Finance Minister Nirmala Sitharaman rationalized the LTCG regime. The rate for qualifying equity short-term capital gains rose from 15% to 20%, while long-term equity gains increased from 10% to 12.5%. The annual exemption threshold also increased from ₹1 lakh to ₹1.25 lakh.
Discussions have also taken place regarding a uniform capital gains tax rate across all asset classes, though tax officials have indicated this would be a lengthy and potentially inequitable process.
Current Debate and Investor Expectations
The Securities and Exchange Board of India (SEBI) has reportedly engaged with the finance ministry, highlighting more attractive tax treatments in countries like South Korea, Taiwan, and Brazil. Many market participants are urging a review of tax policies given the substantial exodus of foreign funds from Indian markets.
A primary concern for the government is ensuring tax parity between domestic and foreign investors to prevent issues like round-tripping. Naitik Doshi, Director-Financial Services at Nangia Global, suggests that a complete LTCG exemption for specific investor categories may not be necessary. Instead, a broader rationalization of LTCG, STCG, and STT, coupled with provisions for foreign currency-based capital gains computation for eligible Foreign Portfolio Investors (FPIs), could offer a more balanced approach. He also advocates for tax-neutral treatment for genuine reinvestment and portfolio rebalancing.
Industry chamber PHDCCI recently emphasized that while geopolitical tensions and competition from other emerging markets pose challenges, rationalizing STCG, LTCG, and STT rates could significantly enhance India's investment appeal. However, they also noted that tax rates, while important, are not the sole determinant for investment decisions.
Nirav Karkera, Head of Research and Funds Manager at W by Groww, concurs that while SEBI's proposals are a positive step, tax efficiency alone won't guarantee a return of foreign capital. Lower capital gains taxes would improve post-tax returns and make Indian equities more competitive. Ultimately, tax reform can remove a disincentive, but it cannot create the fundamental reasons to invest.
A Nomura report on November 3, 2026, highlighted that FIIs sold nearly $5 billion in the fortnight ending October 15, 2026, marking the heaviest fortnightly outflow in 12 fortnights, bringing the net selling since September 15, 2026, to approximately $8.8 billion, although selling intensity has recently eased.