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Business & Stocks Business Standard • Nov 02, 2026

SEBI Backs LTCG Tax Relief for FPIs and Mutual Funds to Drive Capital Inflows

💡 Key Takeaways

•SEBI has backed proposals to remove LTCG tax for foreign portfolio investors (FPIs).
•The regulator also seeks tax relief for domestic mutual fund investors switching between schemes.
•The policy adjustment aims to reduce friction and enhance India's global capital competitiveness.

NEW DELHI [NCRBuzz Wire] — **The Securities and Exchange Board of India (SEBI) has formally backed proposals to remove the long-term capital gains (LTCG) tax for foreign portfolio investors (FPIs) and extend tax relief to domestic mutual fund investors.** This regulatory stance marks a significant shift in addressing investor grievances regarding India's fiscal policy competitiveness.

### Scope of Proposed Tax Relief

**SEBI's backing encompasses eliminating the LTCG tax on foreign investors' equity gains while also streamlining taxation for domestic mutual fund investors who switch between schemes.** Financial analysts and institutional investors have long argued that high transaction and holding burdens create structural friction, diverting foreign capital toward competing emerging markets.

| Fiscal Metric / Indicator | Current Status / Parameter | Market Implication |

|---|---|---|

| LTCG Tax Rate (Equities) | 12.5% on gains exceeding ₹1.25 lakh | Friction for retail and institutional investors; under review for FPIs |

| STT (Securities Transaction Tax) | Revised upward in recent budgets | Higher execution costs for high-frequency and algorithmic trading |

| FPI Inflows / Outflows | Volatile quarterly net institutional flows | High sensitivity to domestic tax policy adjustments |

### Regulatory and Market Rationale

**While the Union Ministry of Finance traditionally utilizes capital gains taxes to ensure progressive taxation and curb speculative volatility, SEBI's intervention highlights growing structural liquidity concerns.** Industry lobbies and veteran market voices have consistently maintained that investor-friendly taxation is vital for retaining and expanding FPI capital deployment in Indian bourses.

### What to Watch Next

**Market participants will closely monitor upcoming Union Budget announcements and formal Ministry of Finance responses to SEBI's recommendations.** Analysts advise tracking institutional flow data and policy directives to assess the practical implementation timeline of any prospective tax rationalization.

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🏛️ Background Context

The long-term capital gains (LTCG) tax on equities was reintroduced in the Union Budget 2018 at 10% on gains exceeding ₹1 lakh without indexation, and was subsequently revised in the Union Budget 2024 to 12.5% on gains exceeding ₹1.25 lakh, alongside an increase in the Securities Transaction Tax (STT).

💡 Citizen & Commuter Quick Explainer (FAQ)

Q1: What triggered SEBI's push for LTCG tax relief?

Continued pressure from institutional investors and market lobbies pointing to capital outflows and structural friction caused by high capital gains holding and transaction taxes.

Q2: Who is affected by the proposed regulatory changes?

Foreign portfolio investors (FPIs) holding Indian equities and domestic mutual fund investors switching between asset schemes stand to benefit if the proposals are enacted.

Q3: What is the immediate next administrative step?

Review and deliberation by the Union Ministry of Finance ahead of upcoming budgetary or fiscal policy announcements.

Verified Wires: Business Standard, Google News Business Original Wire Dispatch ↗

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