How could the abolition of long-term capital gains tax affect India?
Tax abolition could boost foreign capital and improve investor sentiment in India. The suggestion to abolish Long-Term Capital Gains (LTCG) tax is aimed at making Indian equities more attractive to global investors. The report argues that this move could help attract foreign capital and improve investor sentiment, especially amid sustained foreign portfolio investor (FPI) outflows. While the revenue loss from scrapping the tax is estimated to be limited to Rs 40,000-50,000 crore in FY28, the policy aims to counteract the current market environment where Nifty’s average return over the last three years has been only 0.5 per cent.
- Effect
- Mild positive
- How direct
- 2 steps, 2 inferred by Brind
- When
- Within months
- The story
- Gone quiet
How it reaches India
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A report by SBI Research suggested that the government could abolish Long-Term Capital Gains (LTCG) tax across investor categories without significantly disrupting its fiscal consolidation plans. The report noted that the average return of the Nifty over the last three years was only 0.5 per cent, and cumulative foreign institutional investor outflows totaled Rs 4.8 lakh crore. Furthermore, the report recommended raising the annual LTCG exemption threshold from Rs 1.25 lakh to Rs 2 lakh and linking it to inflation.
The full event1independent outlet -
SBI Research suggested abolishing long-term capital gains (LTCG) tax across investor categories. The report estimated the potential revenue shortfall from scrapping the tax would amount to around 0.1-0.2 per cent of GDP, or Rs 40,000-50,000 crore in FY28.
No report states this step directly. Brind drew it from the reporting on each side of it, so treat it as an informed guess.
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The report argued that the abolition of LTCG tax could help attract foreign capital and improve investor sentiment amid sustained foreign portfolio investor (FPI) outflows from Indian equities, thereby making Indian equities more attractive to global investors.
No report states this step directly. Brind drew it from the reporting on each side of it, so treat it as an informed guess.
Tap any step to see the evidence behind it.
The facts so far
As reported. Each one links to where it comes from.
- Nifty’s average return over the last three years was just 0.5 per cent.thehindubusinessline.com
- Cumulative foreign institutional investor outflows were Rs 4.8 lakh crore.thehindubusinessline.com
- The revenue loss from scrapping LTCG tax is estimated at Rs 40,000-50,000 crore in FY28.thehindubusinessline.com
- The report suggested increasing Securities Transaction Tax (STT) by 50 per cent to offset some revenue loss.thehindubusinessline.com
Why it matters
The current environment is characterized by low returns in the Nifty and significant foreign portfolio investor (FPI) outflows, which puts pressure on the country's capital markets and investment attractiveness. If the government were to adopt the tax abolition suggestion, it could signal a major shift in policy aimed at boosting investor confidence and drawing back global capital.
This proposal is part of a broader set of recommendations by SBI Research, which also suggested raising the annual LTCG exemption threshold from Rs 1.25 lakh to Rs 2 lakh and implementing lower tax rates for longer holding periods to encourage long-term capital commitments.
What we don't know yet
- Will the government adopt the tax abolition suggestion or implement the alternative tax structure proposed?
- How will the market react to the proposed increase in Securities Transaction Tax (STT)?
What would change this answer
Who else could feel it
Other possible ripples from the same event.
Reporting
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Brind's analysis is written by AI from the reporting linked above and can be wrong. This explainer is a possibility worth considering, not a forecast: steps marked as Brind's reasoning are not stated in the reporting. It is not investment advice; do your own research.