# Sebi Proposes Scrapping 12.5% LTCG Tax for Foreign Portfolio Investors Regulator seeks to lower transaction costs to boost foreign investment in Indian equity markets. - **Source:** [mint - money](https://www.livemint.com/rss/money) - **Published:** 2026-11-02 - **Topic:** [Finance](https://brifing.si/c/finance) - **Original article:** - **On Brifing:** https://brifing.si/s/8f5eee75-f217-45e7-9cae-af2d8e3ba3c4 ## Regulatory Proposal for FPIs The Securities and Exchange Board of India has recommended removing the 12.5% long-term capital gains tax specifically for foreign portfolio investors. This proposal follows recent adjustments in the Union Budget 2024, which raised the tax rate from 10% to 12.5%. The move aims to address concerns regarding the competitiveness of Indian equity markets. ## Current Taxation Framework Overview Under current rules, long-term capital gains apply to listed equity shares and mutual funds held for over 12 months. Investors receive an annual exemption of ₹1.25 lakh on gains, with amounts exceeding this threshold taxed at 12.5%. This framework replaced the previous 10% rate and the lower ₹1 lakh exemption limit. ## High Transaction Cost Concerns Sebi has explicitly stated that transaction costs for investing in Indian equities are among the highest globally. These costs significantly impact the net returns for international investors. By potentially eliminating the LTCG tax for FPIs, the regulator hopes to reduce these barriers and encourage sustained capital inflows into the Indian financial system. ## Market Context and Outflows Foreign investors have offloaded a record $31 billion in Indian stocks throughout the current year. This massive sell-off coincides with stagnant market returns and increased retail participation. The proposed tax relief is viewed as a strategic mechanism to stabilize investor sentiment and reverse the trend of significant capital flight from domestic markets. ## LTCG Versus STCG Mechanics The tax liability depends heavily on the holding period of the asset. Assets held for 12 months or less are classified as short-term and taxed at 20%. Conversely, assets held beyond 12 months qualify for the 12.5% long-term rate. This distinction creates a clear incentive for investors to maintain longer-term positions in equities. ## Global Emerging Market Comparison India's tax approach differs from other emerging markets like China, Indonesia, Brazil, and Vietnam. While some nations tax gross transaction values at rates as low as 0.1%, others focus on net profits. These varied international models highlight the competitive pressure India faces when trying to attract and retain global institutional investment capital. ## Impact of Tax Calculations For an investor selling shares with a ₹2 lakh gain after 18 months, the current tax liability is ₹9,375, excluding surcharges. This calculation demonstrates how the 12.5% rate directly reduces the net profit realized by the investor. Removing this tax would increase the effective yield for foreign entities operating within the Indian market. ## Strategic Implications for Investors The recommendation signals a shift toward prioritizing market attractiveness over immediate tax revenue. If implemented, this policy could lower the entry barrier for foreign portfolios significantly. Investors should monitor further government deliberations, as the final decision rests on balancing fiscal policy objectives with the urgent need to maintain robust foreign institutional participation. ## Sources covering this story - https://www.livemint.com/money/tax-relief-in-the-offing-sebi-moots-scrapping-12-5-ltcg-tax-for-fpis-what-it-means-and-how-investors-stand-to-gain-11793627705658.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._