India Keeps Long‑Term Tax on Domestic Stock Gains

The Indian government has reaffirmed that the tax levied on domestic investors—12.5% on long‑term capital gains from stocks—will remain unchanged.

Context

• Foreign Investors:
• The ministry recently relaxed tax treatment for foreign investors buying government bonds to attract overseas capital.
• FPIs have already sold about $28 billion of Indian shares in 2026.
• Market Dynamics:
• High oil prices and a weak rupee pressured the market.
• July saw a rebound with $1.25 billion of shares purchased by overseas buyers.

Key Points

• Uniform Rate:
• The 12.5% rate applies to both domestic and foreign equity investors.
• Selective Break:
• The new tax break applies only to FPIs buying government securities.
• Exemption Effective Date:
• Started on 1 April 2026, aiming to make India’s bond market attractive to long‑term foreign capital such as pension funds and sovereign wealth funds.

Fiscal Impact

• Revenue Significance:
• Long‑term equity gains are a major revenue source.
• Assessment Year 2025‑26:
• Collections reached 1.29 trillion rupees (~$13.4 billion), up from 722 billion rupees the previous year.

Ministry’s Message

The stance underscores the importance of this tax to India’s fiscal health while maintaining openness for foreign investors.