Sebi Proposes Ending 12.5% LTCG Tax on Foreign Investors Ahead of 2027 Budget
Sebi has proposed the elimination of the 12.5% long-term capital gains tax for foreign investors to boost equity investment ahead of the 2027 Budget.
NEW DELHI, Nov 3: The Securities and Exchange Board of India (Sebi) has recommended eliminating the long-term capital gains (LTCG) tax on foreign investors. This proposal aims to improve India’s attractiveness for overseas capital and comes ahead of the Union Budget scheduled for February 2027.
Currently, foreign investors incur a 12.5% LTCG tax on eligible equity investments held for more than a year. The recommendations, which also include tax relief for domestic mutual fund investors switching schemes, have been submitted to the government but are non-binding.
According to reports, Sebi’s recommendation stems from concerns that high taxation is driving foreign investors away. In 2026, foreign investors sold $31 billion worth of Indian equities, marking a record high. This comes at a time when domestic markets have been underperforming compared to other emerging markets.
Discussions with foreign investors over the past two years have consistently raised tax issues. The regulator indicated that transaction costs in India are among the highest globally, further discouraging investment.
In addition to the LTCG tax proposal, Sebi has suggested that domestic mutual fund investors should not face LTCG tax penalties when switching between schemes, provided their investments have been held for over a year. Currently, such switches are taxed as redemptions, which could deter investors from reallocating their portfolios.
If accepted, this proposal could offer investors more flexibility without immediate tax liabilities. The mutual fund sector in India is significant, managing assets valued at ₹82.6 trillion and attracting substantial monthly investments.
However, the final decision on these proposed tax changes will be made by the Finance Ministry, and until then, the existing tax provisions will remain in place for both foreign equity investors and domestic mutual fund investors. Sebi’s recommendations have been made during its pre-Budget consultations and await government approval.
Sources
Bhupendra Singh Chundawat is a seasoned technology journalist with over 22 years of experience in the media industry. He specializes in covering the global technology landscape, with a deep focus on manufacturing trends and the geopolitical impact on tech companies. Currently serving as the Editor at Udaipur Kiran, his insights are shaped by decades of hands-on reporting and editorial leadership in the fast-evolving world of technology.