India equity taxes face scrutiny after Rs 4.74 lakh crore FPI exit

India's equity-tax regime drew a competitiveness warning after foreign portfolio investors withdrew Rs 4.74 lakh crore from equities since January 2025, Jimeet Modi wrote in a Moneycontrol opinion article published October 18.

The article said those withdrawals exceeded the Rs 3.86 lakh crore foreign portfolio investors, or overseas funds buying listed securities, invested over the nine years from 2016 through 2024.

Modi argued that India's growth case remains strong but that overseas capital also weighs taxes, transaction costs, exchange-rate moves, market liquidity and policy stability. The article framed taxation as one of the variables most directly controlled by the government.

India taxes long-term capital gains on listed shares at 12.5% on gains above Rs 1.25 lakh, while short-term capital gains are taxed at 20%, according to the opinion article. Investors also pay securities transaction tax, including a 0.1% levy on both buy and sell sides of delivery-based equity trades.

The article compared those costs with regimes in Hong Kong, Singapore and Taiwan, which it said generally offer more favourable capital-gains treatment for foreign portfolio investors in listed shares, subject to conditions. It also said certain foreign investors may be exempt from domestic capital-gains tax on listed shares in the US and UK, depending on circumstances and the applicable legal framework.

The tax debate comes as foreign selling has remained a pressure point for Indian equities. Atlas360 reported on October 18 that October withdrawals of Rs 52,100 crore added to 2026 outflows as crude prices, US bond yields and the dollar weighed on risk appetite.

The Moneycontrol article did not attribute the equity outflows solely to taxation. It also cited global interest rates, geopolitical uncertainty, relative valuations, corporate earnings and rupee depreciation as factors shaping foreign allocation decisions.

India's equity-tax framework has tightened over two decades, according to the article. Long-term capital gains on listed equities were exempt from 2004 to 2018, while the short-term capital-gains rate rose from 10% in 2004 to 20% now.

Transaction-tax receipts have also grown. Securities transaction tax collections increased to Rs 52,197 crore in FY2024-25 from about Rs 7,350 crore in FY2015-16, a roughly sevenfold rise that the article said partly reflected higher market activity rather than tax-rate changes alone.

The article contrasted equity taxation with relief for debt-market investors, saying specified interest income and capital gains earned by foreign portfolio investors from government securities were exempted from income tax from April 2026. Comparable relief has not been extended to equity investments, according to the article.

Source: opinion article, Moneycontrol, October 18, 2026