Investment News · 3 November 2026 · 3 min read
In short: Market regulator SEBI has reportedly recommended that the government remove the 12.5% long-term capital gains (LTCG) tax for foreign portfolio investors (FPIs), according to a Reuters report on 2 November. It has also proposed that switching between mutual fund schemes should not be taxed if units were held for over a year. These are pre-Budget suggestions, not rules. The government will decide in the Union Budget in February 2027.
Why SEBI is asking
| Fact | Figure |
|---|---|
| LTCG tax on listed shares held over 1 year | 12.5% |
| Short-term capital gains tax (under 1 year) | 20% |
| Foreign investor net selling in 2026 | Record $31 billion |
| Nifty 50, last two years | Down 4.8% |
| MSCI Emerging Markets index, same period | Up 40% |
| Mutual fund industry assets | ₹82.6 lakh crore |
LTCG means profit on shares or equity funds held for more than a year. FPIs also pay securities transaction tax (STT) and tax on dividends. SEBI has noted that the cost of investing in Indian shares is among the highest across markets. IIFL estimates that scrapping the tax could lift foreign investors’ returns by about 2.3 percentage points, and Jefferies said a cut could make the market more attractive.
For context on how heavy the selling has been, see our report on FPI outflows in October 2026.
What it means for you
- Nothing changes today. Your tax on equity gains stays the same unless the Budget changes it.
- Only foreign investors would get the LTCG waiver under this proposal. Indian residents would still pay 12.5% LTCG on gains above the yearly exemption limit.
- Mutual fund switches: today, moving money from one scheme to another (even direct to regular, or within the same fund house) counts as a sale and can trigger tax. If accepted, long-held units could be switched without a tax hit. Read our guide on direct vs regular mutual funds.
- If foreign money returns, it could support share prices, but that is not certain. Policy proposals often change before they become law.
- Check how capital gains affect your tax bill with our income tax calculator.
What to watch next
- Any response from the Finance Ministry. None has been reported yet.
- The Union Budget in February 2027, where any tax change would be announced.
Sources
- The Federal (Reuters): SEBI seeks LTCG tax relief for FPIs, mutual funds
- Kotak Neo: SEBI proposes scrapping LTCG tax for foreign investors
- Business Standard: SEBI backs LTCG tax relief
This is a news summary for education, not investment advice. Figures are as reported on or before 3 November 2026; check official sources before making decisions.