Sebi proposes eliminating the 12.5% long-term capital gains tax for foreign investors ahead of Budget 2027

The Securities and Exchange Board of India (Sebi) has formally suggested that the government remove the 12.5% long-term capital gains (LTCG) tax currently applicable to foreign investors. Formulated ahead of the upcoming Union Budget 2027, this recommendation is designed to enhance the attractiveness of Indian capital markets for overseas institutional funds. The proposal targets tax barriers that may hinder foreign portfolio flows into domestic equities and financial instruments.

Capital gains tax structures directly influence the net returns realized by international investors who allocate capital across emerging and developed markets. When tax burdens on long-term investments are lowered or eliminated, overseas funds often find the jurisdiction more competitive compared to alternative global markets. Sebi's advisory role involves counseling the Ministry of Finance on policy adjustments that foster market liquidity and robust foreign participation.

Tax advisors and institutional compliance teams should monitor upcoming budget announcements closely to see if Sebi's recommendation is incorporated into the finance bill. Portfolio managers must evaluate potential shifts in foreign inflows when positioning investments for the 2027 fiscal year. Bottom line: any change to capital gains taxation for overseas funds will directly impact overall market liquidity and foreign investment volumes.