FM Sitharaman Signals Willingness to Hear Foreign Investors' LTCG Tax Concerns Amid Capital Outflows

NEW DELHI — Union Finance Minister Nirmala Sitharaman has signalled that the government is prepared to listen to foreign portfolio investors (FPIs) regarding their growing anxieties over India’s capital gains tax structure. Speaking at an industry event, the minister acknowledged that market dynamics have shifted sharply and stated that she would review these concerns before taking any decision, offering a ray of hope to domestic and global investors seeking relief.

Circumstances Have Changed, Says Finance Minister

Addressing the audience at the Financial Express Leadership Awards, Sitharaman directly confronted the escalating chorus from market participants demanding a reduction in long-term capital gains (LTCG) tax to stem foreign equity sell-offs. She noted that while the current tax framework has remained intact since 2023—a year that witnessed record inflows—the global financial environment has evolved significantly since then.

"The tax structure today is what it was even in 2023 when inflows were record high," Sitharaman remarked. "Circumstances have changed. FPI outflows have happened, and voices of concern are louder."

She added that the government will carefully hear out these representations before deciding on potential policy tweaks, recognizing requests to extend support to equity investments similar to measures available in debt markets.

Relentless FPI Selling Pressures Indian Equities

The Finance Minister’s comments arrive against the backdrop of sustained capital flight from Dalal Street. Foreign portfolio investors have pulled out massive capital from Indian equities in 2026, driven by higher global interest rates, lofty domestic market valuations, and the magnetic pull of tech-driven rallies in competing Asian markets.

This relentless foreign selling, coupled with a depreciating rupee, has weighed heavily on benchmark indices. Financial institutions and brokerages—including SBI Research and global investment firms—have increasingly advocated for lowering or restructuring the LTCG tax and Securities Transaction Tax (STT) on equities to make Indian assets competitive again.

Pre-Budget Expectations Build on Dalal Street

Market participants have pointed out that while non-residents enjoy tax-free status in regional financial hubs like Singapore and Hong Kong, India’s current LTCG tax sits at 12.5 per cent for listed equities following changes made in the July 2024 Budget.

With preliminary discussions for the Union Budget beginning to take shape, Sitharaman’s openness to hearing FPI grievances has stoked anticipation among institutional investors. While any formal policy changes will be balanced against fiscal targets and revenue generation, her willingness to engage directly with investor concerns offers a crucial confidence boost to the stock market.