# Indian Savers Deserve Tax Relief Alongside Foreign Investors SEBI proposals for tax-neutral fund switches highlight the urgent need for domestic investor relief. - **Source:** [mint - money](https://www.livemint.com/rss/money) - **Published:** 2026-11-09 - **Topic:** [Finance](https://brifing.si/c/finance) - **Original article:** - **On Brifing:** https://brifing.si/s/55c37639-4c63-4ec7-8dd7-f835a9e9dc46 ## Regulatory Proposals for Reform The Securities and Exchange Board of India has submitted budget recommendations to the finance ministry aimed at improving market conditions. Key proposals include removing the 12.5% long-term capital gains tax for foreign portfolio investors and making mutual fund scheme switches tax-neutral. These measures seek to reduce high transaction costs currently burdening Indian market participants. ## The Tax-Neutral Switch Logic Currently, shifting capital from a poorly performing mutual fund to a better one triggers a taxable event. This discourages investors from optimizing their portfolios, effectively trapping them in underperforming assets. Implementing tax-neutral switches would allow long-term investors to reallocate their capital efficiently without facing immediate tax penalties on their existing gains. ## Foreign Versus Domestic Disparity Foreign investors have withdrawn approximately $31 billion from India this year, prompting calls for tax exemptions to lure them back. However, domestic savers who consistently supported the market during these outflows remain subject to the 12.5% tax. This creates a perceived inequality where foreign fund managers receive preferential treatment over local retail investors. ## The Problem of Illusory Gains The current tax system fails to account for inflation, leading to taxation on illusory gains. When the cost inflation index is ignored, investors pay taxes on profits that are merely reflections of rising prices rather than real wealth creation. This erodes the actual purchasing power of long-term savings for the average Indian household. ## Impact of Inflation on Returns If an investment grows at 8% annually while inflation sits at 6%, the real tax rate on actual gains can reach 40%. In scenarios where returns fall below 6.5%, the tax burden can effectively exceed 100% of the real profit. This disproportionately punishes patient, long-term investors who rely on steady market growth. ## Historical Context of Indexation Cost indexation was once a standard feature for many investments, providing a mechanism to adjust for inflation. The July 2024 budget largely abandoned this practice, except for a partial rollback concerning specific property acquisitions. Critics argue that a lower tax rate does not adequately compensate for the loss of inflation-adjusted cost calculations. ## Market Support and Equity The government is currently considering these proposals as the budget approaches in three months. If officials are willing to sacrifice revenue to attract foreign capital, they should prioritize domestic savers who provide the market's foundation. Extending indexation to equity would offer significant relief to those who remain invested through volatile cycles. ## Strategic Path for Policy Reforming the tax structure for domestic savers is essential for maintaining long-term market stability. By adopting tax-neutral switches and reintroducing indexation, the government can foster a fairer investment environment. These changes would do more to support Indian markets than providing exclusive red-carpet treatment to foreign portfolio investors alone in the future. ## Sources covering this story - https://www.livemint.com/money/personal-finance/india-stock-markets-tax-relief-sebi-fpi-ltcg-tax-mutual-fund-schemes-11793975299016.html — --- _Summary written by Brifing from the original reporting. Copyright in the original article belongs to its publisher; read the full piece at the link above._