Centre may take call on LTCG tax restructuring on equities in coming weeks

The LTCG tax on sale of equities by foreign and domestic investors is 12.5 percent without indexation benefits. The tax is applicable on gains exceeding Rs 1.25 lakh per financial year on listed shares. No such limit is applicable on sale of unlisted shares.

“A decision on restructuring is expected soon,” an official said on condition of anonymity. “The government is examining the LTCG rate with what is applicable in major economies.”

Indexation benefit is used in taxation to adjust the purchase price of an asset for inflation over time. It reduces the taxable amount on LTCG.

The Centre has held multiple meetings with industry, the Securities and Exchange Board of India (SEBI), the Central Board of Direct Taxes (CBDT), banks and other stakeholders on the LTCG framework and its impact on capital outflows, the sources said.

Cumulative FPI outflows from equities have reached Rs 3.1 lakh crore, so far, in 2026, substantially exceeding the Rs 1.7 lakh crore withdrawn during all of 2025, data from Central Depository Services Ltd (CDSL) shows.

“There is a recognition (within the government) that the tax structure needs to be reviewed to improve the competitiveness of Indian equities and make them more attractive for foreign investors. The government is examining the proposals, including those relating to LTCG,” a senior banking official aware of the discussions said.

For foreign investors, equity LTCG attracts nil tax in the US (subject to some conditions), the UK, Singapore, Hong Kong, the UAE, Japan and Canada. In China, some shares are exempt from LTCG, while others attract a 10 percent tax rate.

On October 13, finance minister Nirmala Sitharaman said the government is keen to hear views on LTGC tax removal.

Email sent to the finance ministry had not elicited a response at the time of publication of this article. The story will be updated when the response is received.

‘Calculate gains on dollar terms’

According to sources, the government is also examining whether the LTCG paid by foreign investors should be calculated on gains made in dollar terms. At the moment, capital gains are calculated in rupee terms.

Trifecta Capital’s co-founder Rahul Khanna told Moneycontrol earlier this month that India needs to reconsider how it taxes foreign investors on their returns, particularly when rupee depreciation reduces their actual gains in dollar terms.

“When people invest at 90 rupees to the dollar, and they exit at 100 rupees to the dollar, if one could actually tax them on an actual currency-adjusted basis,” it would allow taxation to reflect their real gains, he said.

Most overseas investors do not hedge their currency exposure because hedging costs have historically been prohibitive, he said. Consequently, investors may report gains in rupee terms even though their actual dollar-denominated returns are considerably lower.