SEBI’s New Strategy to Attract Foreign Investors

The Securities and Exchange Board of India (SEBI) has reportedly supported a proposal to completely remove the Long-Term Capital Gains (LTCG) tax imposed on foreign investors to encourage greater foreign investment in India. According to reports in certain English media outlets, SEBI has already submitted recommendations to the central government on the matter. The proposal is reportedly aimed at attracting foreign capital, strengthening the Indian rupee and reducing the impact of the West Asian conflict on the country's economy. SEBI is also said to have suggested providing tax relief to domestic investors as part of the proposed measures.

According to sources, SEBI has recommended exempting domestic investors from LTCG tax when they sell their existing mutual fund investments and reinvest the proceeds in new schemes. The proposal comes at a time when Indian stock market indices have experienced considerable volatility over the past two years. Foreign investors have reportedly withdrawn a record $31 billion (approximately ₹2.94 lakh crore) from Indian markets so far this year, putting pressure on the rupee. Currently, foreign investors pay 12.5% LTCG tax on bonds and listed shares held for more than 12 months.

The issue has gained significance ahead of the Union Budget scheduled for February. Finance Minister Nirmala Sitharaman recently indicated that the government was open to receiving suggestions on removing taxes on short-term and long-term capital gains during the upcoming budget consultations. SEBI's reported recommendations have added to the discussion. However, the proposal is not a final decision, and the authority to approve or reject any changes to LTCG taxation rests with the central government.