SBI Research has urged the Indian government to abolish the 12.5% long‑term capital gains tax on equity holdings, citing a Rs 3 lakh crore outflow of foreign portfolio investors in 2026.
In October alone, foreign investors sold Indian shares worth ₹44,166 crore, pushing cumulative withdrawals to ₹3.04 lakh crore for the year, a stark jump from ₹1.66 lakh crore in 2025. The rally in North‑Asian markets, driven by AI‑powered trading, has diverted capital away from India, while elevated crude prices, a stronger US dollar and rising US Treasury yields have dampened investor appetite.
The RBI has deployed a suite of policy tools to stem rupee depreciation, but SBI Research notes that such measures address only the symptom, not the root cause of volatile capital flows. “While the RBI has taken all possible steps to thwart a seemingly difficult global playbook,” the report says, “there is an urgent need for the government to address long‑pending structural issues regarding capital inflows.”
Beyond tax, the report recommends streamlining the repatriation of export earnings, proposing a six‑month window that aligns with typical credit terms abroad. It also calls for clearer rules on withholding tax for external commercial borrowings, which currently range from 5% to 20%, to ensure borrowers can fully benefit from Double Taxation Avoidance Agreements.
A Chennai‑based exporter, speaking on condition of anonymity, said the revised repatriation window could reduce cash‑flow crunches during the annual audit season, hinting at broader acceptance of the proposal among the export community.
The Finance Ministry will review the recommendations in its upcoming policy review meeting, with Parliament slated to debate the move in the next budget session.