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FPIs seek review of capital gains tax amid sustained outflows
New Delhi: Amid sustained outflows from Indian equities, foreign portfolio investors (FPIs) have sought a review of the taxes applicable to them, particularly capital gains tax, according to a report by The Times of India (TOI).
People familiar with the deliberations said the issue has been taken up with market regulator Sebi as well as government officials, with FPIs repeatedly underlining the need for certainty in tax policies.
Apart from highlighting the high cost of trading in India due to multiple levies — including brokerage charges, stamp duty, securities transaction tax (STT), Sebi turnover fees, exchange transaction fees and custody charges — FPI representatives have argued that certain overseas investors face double taxation on capital gains.
These investors have pointed out that FPIs are subject to capital gains tax on investments in Indian securities, while investors in these funds may again be taxed in their home jurisdictions when they receive distributions from the FPI. In addition, FPIs have flagged that foreign tax credits — whereby capital gains tax paid in India could be used to offset taxes in the investor’s home country — are often unavailable or difficult to claim in practice.
“This is because of the way investments are typically made through funds, and also due to the complexity of foreign tax credit regimes,” a tax expert told TOI.
FPIs have also argued that India is among a few countries globally that levy both STT and capital gains tax. Capital gains on listed equity securities were taxable in India prior to 2004, but long-term capital gains (LTCG) tax was abolished when STT was introduced that year. In 2018, LTCG tax on listed equity transactions was reintroduced at 10% beyond a specified threshold, which was raised to 12.5% last year.
A tax specialist at a leading consulting firm told TOI that the higher cost structure has impacted the attractiveness of the Indian market. FPIs have also flagged issues related to computation of capital gains, restrictions on set-off of capital losses in certain cases, and delays in tax refunds.
So far this year, FPIs have sold equities worth ₹33,600 crore on a net basis, marking the highest monthly sales since August, when net sales stood at around ₹35,000 crore. In 2025, FPIs’ net equity sales are estimated at nearly ₹1.7 lakh crore, according to data available on the NSDL website.
With inputs from TOI
People familiar with the deliberations said the issue has been taken up with market regulator Sebi as well as government officials, with FPIs repeatedly underlining the need for certainty in tax policies.
Apart from highlighting the high cost of trading in India due to multiple levies — including brokerage charges, stamp duty, securities transaction tax (STT), Sebi turnover fees, exchange transaction fees and custody charges — FPI representatives have argued that certain overseas investors face double taxation on capital gains.
These investors have pointed out that FPIs are subject to capital gains tax on investments in Indian securities, while investors in these funds may again be taxed in their home jurisdictions when they receive distributions from the FPI. In addition, FPIs have flagged that foreign tax credits — whereby capital gains tax paid in India could be used to offset taxes in the investor’s home country — are often unavailable or difficult to claim in practice.
“This is because of the way investments are typically made through funds, and also due to the complexity of foreign tax credit regimes,” a tax expert told TOI.
FPIs have also argued that India is among a few countries globally that levy both STT and capital gains tax. Capital gains on listed equity securities were taxable in India prior to 2004, but long-term capital gains (LTCG) tax was abolished when STT was introduced that year. In 2018, LTCG tax on listed equity transactions was reintroduced at 10% beyond a specified threshold, which was raised to 12.5% last year.
A tax specialist at a leading consulting firm told TOI that the higher cost structure has impacted the attractiveness of the Indian market. FPIs have also flagged issues related to computation of capital gains, restrictions on set-off of capital losses in certain cases, and delays in tax refunds.
So far this year, FPIs have sold equities worth ₹33,600 crore on a net basis, marking the highest monthly sales since August, when net sales stood at around ₹35,000 crore. In 2025, FPIs’ net equity sales are estimated at nearly ₹1.7 lakh crore, according to data available on the NSDL website.
With inputs from TOI
