Market hoping for capital gains tax cut
NEW DELHI: Foreign portfolio investors (FPIs) have been pulling out of the Indian equity markets in droves -- FPIs have been net sellers to the tune of R1.74 lakh crore since October
Several factors are attributed to capital outflow including Trump’s policies, overheated Indian market and a relatively poor economic forecast.
However, many in the market believe India’s aggressive tax policies have not helped either.
The government in last year’s budget increased tax on short-term capital gains from equities from 15% to 20%, and on long-term capital gains from 10% to 12.5%.
With the budget around the corner, the investor community is hoping against hope for a possible cut in capital gains tax or removal of securities transaction tax (STT). It must be noted that STT was brought in 2004 after removing the long-term capital gains tax on equities.
In 2018 when the government brought back LTCG tax, it did not remove STT (currently at 0.1% on delivery-based sale and purchase of shares). Sameer Arora, founder and fund manager, Helios Capital Management, in a recent post on X said one way to show how wrong the FPIs are in selling Indian stocks is to cut long-term capital gains tax rate to 10%.
While Arora’s post reads like a light-hearted response to well-known investor Shankar Sharma’s angsty column on how India has failed to stop foreign investors from exiting Indian markets, the general sense among investors is that the government was wrong in increasing capital gains tax in the first place.

Venkat Nageswar Chalasani, chief executive the Association of Mutual Funds in India (AMFI), says the industry hopes the Budget would prioritise investor confidence by restoring indexation benefits for debt funds and rationalising the capital gains tax regime. Apart from increasing the LTCG tax rate, the government in the budget last year had also removed the option of 20% tax with indexation benefit on long-term capital gains from real estate, gold, and bonds.
The benchmark indices have fallen by 11% from their peak on 26 September last year. Equity markets are now looking for positive cues from the Budget for a respite from the incessant bearish sentiments.
“The market is looking for cues for a directional view, capital gains tax cut might just be one of the stimuli which the market needs. Having said that, the probability (of which) looks low,” says Vikas Sachdeva, managing director at Sundaram Alternate Assets.
Both long-term capital gains tax and STT have become big revenue earners for the government. In 2022-23, the government collected Rs 98,600 crore from LTCG tax. Collections from STT are likely to touch Rs 45,000 crore in 2024-25.