Key stakeholders are offering divergent prescriptions on how to address concerns over long-term capital gains tax (LTCG) tax and securities transaction tax (STT).
These include scrapping LTCG altogether, removing it just for foreign portfolio investors (FPIs), or lowering the rate. As for STT, suggestions include reducing it for some products and increasing it for others, people familiar with the discussions said.
“A well thought-out call would be taken,” said an official. Finance minister Nirmala Sitharaman has said she will consider investors’ concerns regarding LTCG. These measures are being considered as a way of stemming the exodus of overseas investors that has led to a slump in Indian stock markets.
While the LTCG collections amounted to ₹1.29 lakh crore in FY25, those for STT stood at ₹57,522 crore. Any call on the levies would have to take into account the revenue impact and funding for social sector schemes and subsidies.
Finance ministry officials have met senior market participants to seek their views on capital market taxation. ET had reported on October 28 that the finance ministry officials had reached out to stakeholders on the issue.
Financial sector regulators including the Reserve Bank of India and the Securities and Exchange Board of India (Sebi) are understood to have backed the idea of doing away with LTCG to make India an attractive destination for foreign investors.
Most participants favoured abolishing LTCG on equities while suggesting that the government could consider a marginal increase in STT on options trading alone, leaving cash and futures transactions untouched. They argued that options account for the bulk of daily trading activity and have been the focus of regulatory efforts to curb excessive speculation, people said.
Some participants have cautioned against extending preferential tax treatment to FPIs alone, saying such a move could draw criticism from domestic investors. Short-term capital gains on listed equities, held for up to one year, are currently taxed at 20%, while long-term gains on holdings exceeding one year attract a 12.5% levy.
Foreign portfolio investors have argued that several competing markets in the region do not levy LTCG, putting India at a disadvantage.
Market participants said the combination of rupee depreciation and capital gains taxation has weighed on foreign investors’ dollar-denominated post-tax returns, making other markets more attractive. One of the suggestions that has been put forth is calculating an FPI’s taxable capital gains in dollar terms rather than rupees, said one of the persons.
Separately, some FPI representatives also sought simplification of procedures governing the inflow and repatriation of foreign capital, calling for easier processes to bring funds into India and take money out of the country. Market participants said senior finance ministry officials have patiently heard out their suggestions.
Another official said the implications of all suggestions would be examined before a final decision is reached.
Source from: https://economictimes.indiatimes.com/news/economy/policy/scrap-cut-or-tweak-centre-weighs-options-on-ltcg-stt-to-stem-foreign-investor-exodus/articleshow/135584535.cms?
