Several industry bodies have recommended to the Ministry of Finance that the upcoming Budget 2027 should rationalise the Long-Term Capital Gains (LTCG) tax rate on equities and reduce the rate of the Securities Transaction Tax (STT).
Officials in the Finance Ministry, including Finance Minister Nirmala Sitharaman and Revenue Secretary Arvind Shrivastava, have been conducting their pre-Budget consultative meetings, during which they met the Confederation of Indian Industry (CII), Federation of Indian Chambers of Commerce and Industry (FICCI), the PHD Chamber of Commerce and Industry (PHDCCI), and the Associated Chambers of Commerce and Industry (ASSOCHAM), among others.
Need to remove double taxation
One of the most-cited requests from the industry was the rationalisation of LTCG on equities. In Budget 2026, the Centre removed the 12.5% LTCG tax in the government securities market for foreign portfolio investors (FPIs) alongside other measures including reforms under the Fully Accessible Route (FAR).
Currently, foreign and domestic investors have to pay 12.5% tax on the sale of equities on gains exceeding Rs 1.25 lakh per annum on listed shares. The Centre has held several meetings with the Securities and Exchange Board of India, the Central Board of Direct Taxes (CBDT) and other industry players.
“Removing the LTCG levy would raise post-tax returns and close a gap with Korea, Taiwan and Brazil,” Rakesh Nangia, chairman of task force on International Taxes at ASSOCHAM said. “The debt market is a useful precedent, which after the G-sec relief, saw FPI inflows rise to about $9 billion in June-July.”
The PHDCCI has requested that the government abolish LTCG tax on equity investments, reduce the short-term capital gains (STCG) tax rate from 20% to 10%, and lower STT rates “to encourage long-term investment and improve India’s capital market competitiveness”.
In its representation to Ms. Sitharaman, FICCI highlighted the fact that foreign portfolio investors (FPIs) have withdrawn about Rs 3.08 lakh crore during the year. It added that capital gains tax, which is charged over and above the STT, erodes returns from equities, and needs a review to make India a more attractive place to invest.
However, other market players highlight that the revenue loss incurred from the removal of LTCG could be negated through a hike in STT. According to estimates by SBI Research, the removal of LTCG would result in a revenue loss of Rs 40,000-50,000 crore for FY28.
Computation as a key challenge
One of the key frictions for FPIs underscored by industry bodies and equity analysts is the computation of the tax. Under Income-Tax Act, the calculation of the LTCG is in the Indian rupee. The challenge arises due to currency depreciation as against the investor’s base currency during the holding period, due to which investors are still liable to pay tax even when net returns in dollar terms are flat or even negative. This issue is currently under examination.
VK Vijayakumar, chief investment strategist at Geojit Financial Services also cautioned against selective relief, noting that abolishing LTCG solely for FPIs would be discriminatory against domestic retail and direct equity investors who remain subject to the 12.5% tax. He urged any tax relief must apply equally across the board to ensure a level playing field.
Profits and currency as anchors
Industry experts also suggest that while amendments in tax laws are just one part of attracting inflows, what remains important is continued momentum in corporate earnings growth, policy certainty and a stable rupee.
As such, simplifying onboarding and setting one predictable tax clearance process at exit coupled with making dispute resolution faster and binding is what would bring stable long-term investments, Nangia noted.
Help for MSMEs
Budget 2027 will be presented against the backdrop of the ongoing West Asia crisis, rising inflation, and fiscal pressure on the government. In this, India’s micro, small, and medium enterprises (MSMEs) need help, the industry bodies have argued.
Towards this, PHDCCI has requested the Finance Minister to extend the overdue period after which a loan is classified as a non-performing asset (NPA) from 90 to 180 days “to accommodate longer working capital cycles and delayed realisation of receivables”.
Further, the chamber has called for an enhancement of PM MUDRA loan limits and a Budget announcement of direct equity support to MSMEs through the Fund of Funds Scheme, “with dedicated allocations for start-up seed capital and SME IPO participation.
Published – November 10, 2026 05:52 pm IST
