Foreigners to pay LTCG tax on par with local investors

The new rate will align the tax rate for FPIs with the rate for listed shares and equity-oriented mutual funds and will apply to the assessment year 2026-27 and beyond.
Image used for representation purposes only.
Image used for representation purposes only.(File Photo)
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MUMBAI: The budget has taken away the lower capital gains tax rate that foreign funds (foreign portfolio investors) enjoyed over the locals by bringing them on par with the latter who are taxed at 12.5%.

Foreign investors were paying only 10% in capital gains on their profits made from sale of listed bonds, debentures, preference shares, and unlisted securities. The goal is to make the tax rate for non-residents the same as the rate for residents.

Announcing the changes, the finance minister said in her budget speech that the revised long-term capital gains tax (LTCG) for foreign portfolio investors will be 12.5% from April 1, 2026 and not from this April, which is when budget proposals get kicked in.

The new rate will align the tax rate for FPIs with the rate for listed shares and equity-oriented mutual funds and will apply to the assessment year 2026-27 and beyond.

According to Sunil Gidwani, a partner at tax consultancy Nangia Andersen, last year when the LTCG tax rates were changed for residents, the tax rates for FPIs on shares, equity MFs and business trusts were also changed to 12.5% but LTCG on other assets such as G-secs, bonds and NCDs were left out for them, perhaps inadvertently, and continued to be taxed at 10%. This is sought to be corrected.”

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