Govt seeks investor and expert views on LTCG and STT as it reviews capital market levies amid FPI exodus

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.

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.

The 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.