The government is looking at possibly reducing the long-term capital gains (LTCG) tax on shares, currently at 12.5%, to boost the stock market.
This move comes as discussions begin for the Union Budget 2027-28, with an aim to improve market sentiment and address concerns about foreign investor outflows.
Officials are also considering allowing foreign investors to calculate capital gains in dollar terms, rather than rupees, for tax purposes. This would apply to both domestic and international investors. The proposal is being discussed due to weak market returns over the past two years and rising participation from individual investors.
There’s a growing worry about whether domestic mutual fund investments can continue to offset large withdrawals by foreign portfolio investors. Reducing the tax could help restore confidence among investors. Sources indicate that a final decision will be made after consulting various stakeholders.
Finance Minister Nirmala Sitharaman had previously suggested the government was open to feedback on removing the LTCG tax. This ongoing review could mark a significant change in India’s equity taxation framework.