Business News : The Indian stock market has been witnessing a significant decline for some time now. The main reason for this is the continuous outflow of funds by Foreign Portfolio Investors (FPIs). Now, to stop these sales, the central government has initiated action. The government is considering major changes in the rules for long-term capital gains (LTCG) tax and securities transaction tax (STT). Finance Minister Nirmala Sitharaman has also made it clear that she will consider investors’ concerns regarding LTCG. According to a report in the Economic Times, a government official said that the final decision on the matter will be taken after careful consideration.

What suggestions came in the finance ministry meeting?

Finance Ministry officials have held meetings with leading market experts to address this critical issue. Economic Times reported on October 28 that the ministry has sought input from all stakeholders on the issue. People familiar with the discussions say the government has received various suggestions. Some advocate complete abolition of LTCG tax, while others suggest reducing its rates. One suggestion is that this tax be abolished only for Foreign Investors (FPIs). Regarding Special Interest Liabilities (STT), it has been suggested that it be reduced on some products and increased on others.

From RBI to SEBI, all in favor of change

According to sources, everyone from the Reserve Bank of India (RBI) to market regulator SEBI supports the idea of ​​scrapping the LTCG tax to make India attractive to foreign investors. Most of the participants in the meeting also advocated abolition of LTCG on shares. However, he also suggested that the government may raise the STT on options trading only marginally, without affecting cash or futures transactions. They argue that options trading accounts for the largest share of day trading. Regulators are also trying to curb excessive speculation in the sector.

Impact on government exchequer, concern of domestic investors

It will not be easy for the government to decide to reduce LTCG or STT. In FY 2025, the government received a whopping Rs 1.29 lakh crore from LTCG, while STT generated Rs 57,522 crore. Before implementing any tax cut, the government has to calculate its revenue loss, as this money is used for social sector schemes and subsidies. On the other hand, some experts have cautioned against giving tax exemptions only to foreign investors. They say that if this happens, local investors will criticize it. Currently, listed shares held for one year are subject to 20% short-term capital gains (STCG) tax. 12.5% ​​LTCG tax is levied on holding shares for more than one year.

Foreign investors worried about declining dollar returns

Foreign investors argue that many other competitive Asian markets do not impose LTCG tax, putting India at a disadvantage. Market experts said the combined effect of the capital gains tax, along with the depreciation of the rupee, has significantly reduced foreign investors’ dollar-denominated returns. As a result, they are finding other markets more attractive. One suggestion in the meeting was to calculate taxable profits of foreign investors in dollars instead of rupees. In addition, some FPI representatives have also demanded a simpler process for bringing money into India and withdrawing it. Officials have carefully listened to all the suggestions. The government will take a final decision only after examining the impact of all these aspects.