LTCG, STT | FII selling: Amid continuous FIIs' selling in the Indian stock market, the finance minister Nirmala Sitharaman dropped a hit to relook at the taxation rules for the Indian stock market. Replying to a question at the Bloomberg New Economy Forum 2026, Sitharaman said investors in India and abroad had been debating the taxation of capital gains and different asset classes, adding that the government was open to hearing their views. This has opened the debate, if there will be some relief for the Indian stock market investors coming in the Union Budget 2027?
In its latest Ecowrap report, SBI Research highlighted the need for structural measures by the government to strengthen capital inflows, stating that monetary and foreign exchange interventions by the Reserve Bank of India (RBI) alone may not be sufficient to address the challenges facing the rupee.
"The Government must seriously look into anchoring hot money flows into the equity segment by extending the holding period to say 2-3 years and abolishing the long-term capital gains tax for equity," the SBI Research report said.
Highlighting the need for removal of LTCG and STT, Seema Srivastava, Senior Research Analyst at SMC Global Securities, said, “Foreign Institutional Investors (FIIs) evaluate global emerging markets through the prism of net post-tax alpha, ease of operational execution, and macro stability.”
The SMC Global Securities expert said that tax predictability remains the primary lever for reversing FII outflows. The hike in capital gains taxes—short-term capital gains (STCG) to 20% and long-term capital gains (LTCG) to 12.5%—alongside applicable surcharges and the Securities Transaction Tax (STT), creates a friction drag that makes peer markets like South Korea or Taiwan relatively attractive.