Finance Minister Nirmala Sitharaman on Monday announced that the government is open to reviewing the concerns raised by foreign portfolio investors (FPIs) regarding India's current capital gains tax framework. Her remarks come amid persistent calls from market participants for a reduction in the long-term capital gains (LTCG) tax on equities, a move that stakeholders believe would foster a more conducive environment for international investment.
Addressing attendees at the Financial Express Leadership Awards 2026, Sitharaman acknowledged that taxation is only one of several factors influencing investment decisions. However, she noted that the government remains acutely aware of the sensitivity and anxiety currently prevalent among both retail investors and major equity market participants. While the minister observed that the taxation structure remained consistent during the 2023-24 period—when India saw record-breaking foreign investment inflows—she conceded that the broader economic landscape has shifted since then.
The minister noted that while India achieved its highest foreign inflows under the existing tax regime in 2023-24, recent months have seen a rise in net outflows by foreign institutional investors (FIIs), though there are emerging signs of a reversal in that trend. Sitharaman emphasized that the government is closely observing these developments, noting that the voices of concern from investors have grown louder as external challenges have increased. She maintained that because sustaining economic growth of over 7 percent is a top priority, ensuring a steady flow of capital is essential.
The discussion surrounding the tax regime has gained momentum ahead of the upcoming Union Budget, which is scheduled for February. Reports suggest that the Securities and Exchange Board of India (SEBI) has formally recommended measures to provide tax relief for both foreign and domestic investors. According to media reports, the market regulator has requested that the government consider removing the LTCG tax on equity investments made by foreign entities to encourage greater market participation.
Furthermore, SEBI has reportedly proposed simplifying the tax burden for domestic mutual fund investors. The recommendation includes providing relief when investors switch their existing investments from one mutual fund scheme to another, effectively removing the tax hurdle that currently exists during such transfers. These proposals are among the key recommendations submitted by the regulator to the government to bolster market sentiment.
Sitharaman did not provide specific details on potential policy changes at this stage but reaffirmed that the government is attentive to the feedback from the investment community. Beyond equity taxation, she highlighted ongoing government efforts aimed at deepening and widening the domestic bond market. These initiatives are part of a broader strategy to diversify investment avenues and maintain long-term financial stability.
As the government prepares for the next budgetary exercise, the focus remains on balancing the need for domestic resource mobilization with the requirement to remain an attractive destination for global capital. The finance minister’s commitment to consider all concerns suggests that the upcoming policy discussions will involve a careful evaluation of how the tax structure can be optimized to support the country's robust growth trajectory without compromising fiscal objectives.
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