What happened
The market regulator, Sebi, has asked the government to do away with long-term capital gains (LTCG) tax for foreign investors, according to a Reuters report carried by Mint and Business Today on 2 November 2026.
The reports add that Sebi has also proposed relief for domestic mutual fund investors. Moving money from one scheme to another would not be treated as a taxable sale if the units were held for more than a year.
The recommendations are not binding. The final decision rests with the government, and the Union Budget is scheduled for February.
Neither Sebi nor the finance ministry has been quoted publicly on the matter in the reports.
What it means for you
Capital gains tax is charged on the profit when you sell an asset. At present, the reports say, the LTCG rate is 12.5% for shares and similar securities kept longer than a year, while shorter holdings face short-term capital gains tax of 20%. Securities transaction tax on trades and withholding tax on dividends come on top.
If the proposal were accepted, foreign investors would pay no LTCG tax. Brokerage IIFL estimates that scrapping the tax could lift their returns by 2.3 percentage points.
For domestic investors, the switch proposal would matter if you move between mutual fund schemes. Today, the reports note, such a switch is taxed as a sale. Nothing changes until the government decides.
Raamdeo Agrawal, chairman and co-founder of Motilal Oswal Financial Services, told Business Today that such a move would “largely” be seen as a positive development, but that the final announcement, possibly in the Budget, must be awaited.
Background
The reports say Indian equities have lagged emerging market peers over the past two years. The Nifty 50 has fallen 4.8% in that period, while the MSCI emerging market index is up 40%.
Foreign investors have sold a record $31 billion of Indian stocks this year, which has put pressure on the rupee, according to the reports. Sebi’s recommendations follow several meetings with foreign investors, who repeatedly raised how India taxes them.
Brokerage Jefferies said in a recent note that any cut in capital gains taxes could make the market more attractive to foreign investors and support inflows.
Indian mutual funds manage 82.6 trillion rupees ($870.80 billion) in assets, with an average of 30 billion rupees coming in each month through monthly investment plans, Mint reported. Morningstar data cited in the report show average returns from large-cap funds are down 1.6% over the two years.
Related: our earlier coverage of the proposal.
