The Indian government confirmed that Foreign Portfolio Investors (FPIs) are not exempt from the 12.5% long-term capital gains (LTCG) tax on equity investments. This clarification was made by Union Minister of State for Finance Pankaj Chaudhary in a written response to the Lok Sabha on July 20. The minister addressed concerns raised by Members of Parliament regarding potential preferential tax treatment for FPIs amid the poor performance of Indian equity markets.
Key Details
Chaudhary stated that the LTCG tax rate for FPIs is the same as that for domestic and retail investors. He explained that a recent amendment through the Income-tax (Amendment) Ordinance, 2026, applies only to Government Securities (G-Secs) and not to equity investments. The amendment, which takes effect from April 1, 2026, exempts FPIs from income tax on interest and capital gains earned from G-Sec investments. This change aims to enhance the competitiveness of India’s tax framework and attract foreign capital.
Background
The government’s objective is to encourage long-term foreign participation in India’s debt market by attracting stable institutional investors. Chaudhary noted that this step would help ensure a systematic inflow of durable foreign capital, aligning India's tax treatment of G-Secs with that of comparable jurisdictions.
The confirmation of the LTCG tax for FPIs could impact foreign investment flows into Indian equities, as the lack of an exemption may deter some investors. The broader implications could affect the performance of the Indian equity market, particularly in light of recent underperformance compared to other global markets. Investors will watch for further details regarding the implementation of the tax amendments and their effects on market sentiment.