Foreign investors seek tax relief in India
FPIs and trading companies approach Sebi and government for securities transaction tax cuts
1Foreign investors' tax demands
Foreign portfolio investors (FPIs) and trading companies in India are demanding reductions in securities transaction taxes. They have formally approached the Securities and Exchange Board of India (Sebi) and the central government to alleviate the burden of double capital gains taxation. The increasing tax burden in 2026 is negatively affecting foreign investors' operations in Indian markets.
2Offshore activity risk
The Reserve Bank of India's (RBI) strict leverage rules are increasing the risk of trading activities moving offshore. Experts warn this could lead to decreased government revenues and reduced market liquidity. Particularly high-volume investors are showing interest in alternative financial centers. This trend could impact India's position as an emerging market destination.
3Government tax policies
The Indian government recently implemented tax cuts on government securities. Authorities are now reviewing securities transaction taxes as well. These policy revisions are seen as part of the country's strategy to attract foreign investment. Market liquidity and competitiveness are key factors in the decision-making process.
4Double taxation issue
Foreign investors face double taxation on both transaction taxes and capital gains. This significantly reduces profitability for active institutional traders. Compared to other emerging markets in the region, India's tax policies are considered more burdensome. The current structure particularly disadvantages high-frequency trading operations.
5Market liquidity concerns
Experts emphasize that high transaction taxes negatively impact market liquidity. Trading volumes on Indian exchanges have decreased by 5.2% in the last quarter. Reduced liquidity increases price volatility, especially for small and mid-cap stocks. Regulators are considering measures to reverse this trend and maintain market depth.
6Regional competition pressure
Financial hubs like Singapore and Hong Kong continue to attract foreign investors with lower tax rates. India's review of tax policies is seen as crucial to remain competitive regionally. Tax reforms are particularly important for maintaining global appeal in fintech and digital asset investments.
7Regulatory approaches
Sebi is balancing market stability and investor protection while evaluating tax reduction requests. The regulator has recently published new conduct codes for senior officials. Comprehensive regulatory reforms are expected to be addressed as a package. RBI's monetary policy objectives will also influence the decision-making process.
8Impact on investment climate
Tax reductions are expected to enhance India's ability to attract foreign investment. Particularly portfolio investments and fintech startups are predicted to benefit. However, potential decreases in government revenue that could pressure the fiscal deficit are also being considered. Long-term, tax reforms are believed to strengthen the economy by increasing market depth.
Original article: Economic Times — Yabancı yatırımcılar Hindistan'da vergi indirimi talep ediyor