Markets regulator SEBI has recommended the government remove the long-term capital gains (LTCG) tax imposed on foreign investors, two sources with direct knowledge of the matter said, as India looks to galvanise its underachieving equity markets.
The Securities and Exchange Board of India (SEBI) has also proposed tax relief for domestic mutual fund investors, suggesting they be exempt from LTCG if they are selling existing holdings to invest in new ones, the sources said.
The recommendations, which come months before the annual budget in February, are not binding and a final call rests with the government.
India's equity market has lagged emerging market peers over the past two years. Foreign investors have sold a record $31 billion in Indian stocks this year and overseas investments by retail investors have surged as returns have stagnated.
SEBI's recommendations follow scores of meetings held by the regulator with foreign investors over the last two years as selling persisted, putting pressure on the Indian currency.