NEW DELHI/MUMBAI: Finance minister Nirmala Sitharaman Tuesday said the govt was open and keen to “hear” discussions around the long-term capital gains (LTCG) tax as it was “healthy” to have the debate.The minister, however, declined to be specific on the matter as preparations for the Union Budget in Feb are already underway.The FM’s comments raised investors’ hopes of a reduction in LTCG tax and securities transaction tax (STT), a longstanding demand among foreign funds who have been big sellers in the Indian market in the last two years.As a result, after a steady start, stock prices jumped with the sensex finally settling 1.5% or 1,109 points up at 73,034 points while Nifty closed 1.6% or 359 points up at 22,722 points.RBI steps to check rupee volatility: FM While responding to an observation that investors, especially foreign funds, were keen on removal of capital gains tax and streamlining of taxation before they started investing in India, Sitharaman said, “Two years ago, we had bought all the asset classes similarly and people thought that I was increasing the tax. I was not increasing the tax, I was bringing all of them at par, so that an investor is not speculating as to which one gives them greater leverage. So, these are the things on which there is a lot of debate. It’s healthy to have this debate and I will be keen to hear them.”At a Bloomberg event, FM acknowledged that investors, both within and outside, were commenting on LTCG and the question of treating all asset classes similarly has been a widely discussed topic.So far this year, foreign portfolio investors (FPIs) have bet sold Indian stocks worth a little over Rs 3 lakh crore, NSDL data showed. In 2025, the corresponding figure was a net outflow of nearly Rs 1.7 lakh crore and just Rs 427 crore in 2024. Since Sept 2024, sensex has lost about 13%.At the same event, Sitharaman also noted that rupee has depreciated “significantly” over the past year and a half, and RBI will continue its efforts to prevent excessive volatility. “RBI is not trying to fix the rupee, it is trying to stop the volatility, and for that there is a lot of effort from their side. I am sure RBI will take further steps to make sure that rupee does not become too volatile,” she said in response to a query on capital outflows, especially in the equity market due to currency depreciation.FM stressed that govt has kept the economy on a sound footing and been careful with its spending and borrowings, helping investors looking to diversify away from China. “Fiscal discipline is not going to be a matter which should worry investors,” she said, adding that domestic private capital is moving in and is attracting private capital from elsewhere as well.
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At a time when foreign funds are taking money out of India at a fast clip, a relook at the taxes related to the markets is a welcome move.According to Hitesh Sawhney, partner at Price Waterhouse, against the current backdrop of sustained foreign investor selling, elevated global yields and capital moving towards competing markets, revisiting LTCG taxation may be timely.“A (zero) tax rate on LTCG, linked to a relatively longer holding period, could reward patient capital, encourage investors to remain invested in India and strengthen India’s relative capital market attractiveness. It would also reduce foreign investors’ dependence on treaty-based exemptions and the resulting uncertainty over treaty eligibility.”
