Sebi Recommends Scrapping Long-Term Capital Gains Tax on Foreigners Amid $31 Billion Sell-Off in Indian Stocks
Key Facts
India’s Securities and Exchange Board has recommended that the government scrap the long-term capital gains tax imposed on foreign investors, according to two people familiar with the matter cited by Reuters. The recommendation comes as foreign investors sold $31 billion worth of Indian shares during 2026 through the date of the report, in a wave Reuters said had pressured the Indian currency. The proposal does not immediately change existing tax rules, however, as the regulator’s recommendations are non-binding and the final decision rests with the government. The proposals aim to reduce the tax burden on foreign investors, one source told Reuters. The recommendations may be considered ahead of the federal budget scheduled for February 2027.
The recommendation to scrap the tax is part of a broader package concerning the treatment of investments in domestic funds. The regulator recommended that an investor’s move from one domestic mutual fund to another not be treated as a taxable sale if the investor has held the units for more than a year. The change is intended to encourage investors to remain invested in domestic funds when changing the scheme or fund they choose. The current tax on long-term gains on securities held for more than a year is 12.5%, while the short-term capital gains tax is 20%, according to the Reuters report. The two proposals therefore address different groups: the burden on foreign investors and the tax treatment of domestic investors’ transfers between funds.
The regulator’s recommendations followed repeated meetings with foreign investors over the previous two years, as selling continued and pressured the Indian currency, according to Reuters. This places the proposal in the context of regulators’ efforts to respond to investor feedback on the cost of investing in the market. The proposal is not an effective government decision, however, and does not in itself guarantee a return of foreign inflows. The proposed tax repeal remains subject to government approval, while the package also includes conditional tax relief for domestic fund investors. The government is due to consider the proposals ahead of the federal budget in February 2027.
In the November 2 session, the Nifty 50 rose 1.68% to 23,440.80 points, while the Sensex gained 1.66% to 75,692.78 points. Reliance Industries shares jumped 11.6%, their best session in six and a half years, after quarterly results beat expectations. The company’s net profit in the September quarter rose 40.6% to 255.48 billion rupees, exceeding analysts’ estimate of 214.19 billion rupees. Analyst Devin Choksey said, "The market is accepting the results well, and that is reflected in the share’s move," adding that the gains came after the stock had traded near its lows, with valuations appearing more attractive. Market coverage linked the stock’s performance to the strong quarterly results, while citing other factors that supported market sentiment in the session.
Among the factors supporting sentiment were a decline in U.S. Treasury yields, lower Brent crude prices amid hopes of progress in talks aimed at ending the Iran war, and strong October goods and services tax collections, according to market coverage. Brent fell to $109 a barrel on November 2, from a peak of $118 on the previous Friday, as Iranian and Qatari talks took place to discuss an agreement to end the U.S.-Israeli war on Iran. Data from India’s Ministry of Statistics also showed that the quick estimate of the industrial production index stood at 124.3 in September, compared with 116.5 in September 2025. Seventeen of the 23 groups in the manufacturing sector recorded positive year-on-year growth during the month. September data had shown growth in industrial production, but at a slower pace than the preliminary August estimate of 8.0%.