Major Boost for Markets on Cards: SEBI Backs Removal of LTCG Tax for Foreign Investors

SEBI Recommends Scrapping 12.5% LTCG Tax for Foreign Investors, Relief for MF Investors Too

In a major move to revive foreign investment in Indian equities, markets regulator SEBI has recommended to the government that Long-Term Capital Gains (LTCG) tax for foreign investors be scrapped. The proposal has been made as part of SEBI’s pre-budget representations ahead of the Union Budget in February 2027.

According to a Reuters report citing two sources with direct knowledge, SEBI has also proposed tax relief for domestic mutual fund investors, suggesting they be exempted from LTCG tax if they are selling existing holdings to reinvest in new schemes. The recommendations are not binding and the final decision rests with the government

The proposal comes after SEBI held scores of meetings with foreign investors over the last two years amid persistent FPI selling that has pressured the Indian currency and kept Indian markets underperforming. Currently, investors pay LTCG tax of 12.5% on securities held for more than a year and STCG of 20%, besides STT and dividend taxes.

If accepted, the move could be a game-changer. Brokerage firm IIFL estimates scrapping capital gains tax could lift foreign investors’ returns by 2.3 percentage points, while Jefferies said any reduction in capital gains tax could significantly improve market attractiveness and support portfolio inflows.