Summary: Finance Minister Nirmala Sitharaman has indicated that the government will consider investors’ concerns about equity taxation amid substantial foreign portfolio investor (FPI) outflows. Speaking at an event in Mumbai on 2 November 2026, she recognised that changed market conditions have intensified demands for a more supportive tax regime, even though India had attracted significant overseas capital under the earlier framework. The debate centres on long-term capital gains (LTCG) taxation, the competitiveness of Indian equity markets and whether equity investment should receive policy support comparable to measures available in the debt market. The Finance Minister emphasised that India needs equity capital to sustain economic growth above 7%, while also cautioning that the interests of domestic investors must be considered. Reuters reported foreign equity sales of approximately $31 billion during 2026 up to her remarks. Under the Income-tax Act, 2025, qualifying short-term equity gains are generally taxed at 20% under Section 196 and qualifying long-term equity gains above the aggregate ₹1.25 lakh threshold at 12.5% under Section 198, subject to applicable conditions. The statement is not a tax-rate announcement: no reduction, higher exemption threshold or FPI-specific equity concession has been confirmed. Any relief in Budget 2027 would require appropriate legislative action.
- Finance Minister Acknowledges Calls for Equity Tax Review
- Why Foreign Investors Are Seeking Tax Relief
- Policy Support for Equity Compared With Debt
- Current Equity Capital Gains Tax Rates for Tax Year 2026–27
- Illustration: Potential Savings if LTCG Tax Were Reduced
- What Might Be Considered in Budget 2027?
- Review of the LTCG Rate
- Higher Threshold for Retail Investors
- Targeted Measures for Foreign Investors
- Why Equity Investment Matters for India's Growth
- What Should Investors Do Now?
- Conclusion
Finance Minister Acknowledges Calls for Equity Tax Review
At the Financial Express Leadership Awards on 2 November 2026, Finance Minister Nirmala Sitharaman acknowledged investor concerns about the taxation of equity investments. She observed that market conditions and challenges had changed since the period of strong foreign inflows and indicated that the government would consider the representations. Her comments did not amount to a commitment to reduce the tax on capital gains.
Why Foreign Investors Are Seeking Tax Relief
Foreign portfolio investors have sold substantial amounts of Indian equities in 2026. Investors assess Indian shares against other markets on valuations, expected earnings, currency risk, global yields and post-tax returns. Tax policy is one factor, but the outflows cannot be attributed solely to capital gains tax. The broader tax framework is discussed in TaxGuru’s comparison of the Income-tax Acts, 1961 and 2025.
Policy Support for Equity Compared With Debt
The Finance Minister recognised calls for equity markets to receive support comparable to that extended to debt markets. Reuters reported that the securities market regulator had recommended considering capital gains tax relief for foreign equity investors. Such a recommendation should not be treated as an enacted exemption. For context, see TaxGuru’s FAQs on foreign institutional investors and tax exemption.
Current Equity Capital Gains Tax Rates for Tax Year 2026–27
The Income-tax Act, 2025 applies from 1 April 2026. The following general rates apply to qualifying transactions, subject to the statutory requirements and applicable special provisions:
| Particulars | Provision | General position |
|---|---|---|
| Short-term gains on qualifying listed equity | Section 196 | 20% |
| Long-term gains on qualifying listed equity | Section 198 | 12.5% |
| Aggregate threshold for qualifying LTCG | Section 198 | ₹1,25,000 |
| Specified foreign institutional investor income | Section 210 | Subject to applicable conditions |
| Surcharge and health and education cess | Applicable provisions | Additional, where applicable |
The corresponding provisions under the Income-tax Act, 1961 were Sections 111A, 112A and 115AD. TaxGuru’s income-tax rates guide for AY 2026–27 and Tax Year 2026–27 explains the broader rate structure. Classification of share transactions as capital gains or business income also matters; see share trading income: capital gains versus business income.
Illustration: Potential Savings if LTCG Tax Were Reduced
Assume a resident individual earns ₹10 lakh of qualifying long-term listed-equity gains, can use the full ₹1.25 lakh threshold, and has no other relevant adjustments. Surcharge and cess are excluded.
| Particulars | Current 12.5% | Hypothetical 10% |
|---|---|---|
| Total LTCG | ₹10,00,000 | ₹10,00,000 |
| Threshold | ₹1,25,000 | ₹1,25,000 |
| Taxable LTCG | ₹8,75,000 | ₹8,75,000 |
| Tax before cess | ₹1,09,375 | ₹87,500 |
| Illustrative saving | — | ₹21,875 |
Important: The 10% rate is hypothetical. The government has not announced or proposed this reduction.
What Might Be Considered in Budget 2027?
Review of the LTCG Rate
Reducing the 12.5% rate would improve post-tax returns for eligible investors, but would have fiscal implications. No rate change has been announced.
Higher Threshold for Retail Investors
Increasing the ₹1.25 lakh threshold could provide targeted relief to smaller investors. This is a policy possibility, not a confirmed proposal.
Targeted Measures for Foreign Investors
Any FPI-specific concession would need to address statutory eligibility, treaty implications and parity with Indian investors. Sitharaman specifically recognised the need to consider domestic investors rather than providing preferential treatment to foreign capital without considering its wider consequences.
Why Equity Investment Matters for India’s Growth
The Finance Minister said India requires capital, particularly equity investment, to sustain economic growth exceeding 7%. Equity finance supports business expansion and investment without increasing debt in the same manner as borrowing. A predictable and competitive market framework may assist capital formation, but taxation is only one part of that framework.
What Should Investors Do Now?
Investors should continue applying the existing law and avoid treating the Finance Minister’s remarks as an enacted tax concession. Any future proposal should be assessed only after its legislative wording, commencement date, conditions and transitional provisions are known. The Finance Act, 2026 provides relevant legislative background.
Conclusion
The Finance Minister’s willingness to consider equity-tax concerns is an important policy signal amid FPI outflows and demands for stronger capital-market support. It is not, however, a decision to cut tax. Qualifying STCG and LTCG continue to be taxed under the prevailing statutory provisions unless and until the law changes.
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Disclaimer: This article provides general information and analysis of reported public statements and the prevailing taxation framework as of 3 November 2026. It does not constitute investment, legal or tax advice. The Finance Minister’s remarks do not amend legislation, announce a specific tax reduction, or guarantee relief in a future Union Budget. Capital gains taxation depends on the taxpayer’s residence, investor classification, nature of the asset, acquisition and transfer dates, holding period, securities transaction tax conditions, availability of thresholds, capital losses, applicable exemptions, surcharge, cess, treaty provisions and other statutory requirements. Different rules may apply to unlisted shares, derivatives, certain fund units, transactions through an International Financial Services Centre and other categories of securities. The illustrative calculation is based on expressly stated assumptions and excludes taxpayer-specific adjustments. The hypothetical 10% tax rate must not be interpreted as an official proposal or forecast. Foreign portfolio investment flows are affected by numerous market and macroeconomic factors; the reported outflows should not be attributed solely to taxation. Readers should consult the Income-tax Act, 2025, the Finance Act, 2026, relevant rules and official government communications before determining their tax obligations. Any subsequent government proposal must be examined in its final enacted form, including the effective date, transitional treatment and conditions. No person should purchase, sell or hold a security solely in expectation of possible future tax relief. Professional advice should be obtained for material transactions, cross-border investments and tax planning decisions. Market returns are uncertain, and neither a policy discussion nor an editorial assessment establishes that any particular investment outcome will follow.
