An across-the-board capital gains tax cut, an FPI-specific LTCG tax rate cut, and a change in the method of computing gains for FPIs in US dollar terms are some of the policy options before the government to rationalise equity taxation in India, investment banking and capital markets firm Jefferies has said.
It said the chances of a differential tax treatment for foreign portfolio investors in equity cannot be ruled out, as long-term capital gains (LTCG) on equities are tax-exempt for FPIs in several emerging markets.
Historically, FPIs in India have had a tax incidence similar to other investors (12.5 per cent on LTCG and 20 per cent on STCG).
Jefferies said though FPIs earlier benefitted from investments via tax-friendly jurisdictions under Double Tax Avoidance Agreements (DTAAs), these options have been largely closed since April 2019.
Earlier, foreign investors could use treaty benefits to reduce or avoid Indian capital gains tax on their investments in Indian equities. However, with the renegotiations of DTAAs, such benefits were substantially restricted for new investments.