SBI Research Advocates for Elimination of Long-Term Capital Gains Tax on Equities, Urges Government to Manage Hot Money Flows

Foreign investors have withdrawn a staggering Rs 44,166 crore from Indian equities in October, contributing to total outflows exceeding Rs 3 lakh crore in 2026. Economists at the State Bank of India (SBI) have responded by recommending the abolition of the long-term capital gains (LTCG) tax on equity investments. They argue that this move could stabilize foreign capital flows and encourage longer investment horizons.

SBI’s Ecowrap report suggests extending the holding period for equity investments to 2-3 years while eliminating the LTCG tax. The proposal aims to mitigate abrupt withdrawals that can exert pressure on the Indian rupee. The report also acknowledged the Reserve Bank of India’s (RBI) recent measures to address rupee depreciation, stating that the central bank has implemented significant actions to counteract the currency’s decline.

Currently, foreign portfolio investors (FPIs) face a 12.5% LTCG tax on equity investments, a rate maintained in the Union Budget 2026. The report indicates that investor sentiment has been negatively impacted by high crude oil prices, a stronger US dollar, and rising US bond yields. Additionally, an AI-driven rally in North Asian markets is attracting foreign capital away from India, further exacerbating the outflows.

SBI Research suggests changes to export proceeds and tax rules. The report advocates for simplifying the repatriation process for export earnings, proposing a timeframe of around six months, which aligns with the credit periods typically offered by exporters to overseas buyers. It emphasizes that any requests for extensions beyond this period should be evaluated on a case-by-case basis.

These recommendations aim to bolster foreign currency inflows and enhance the stability of India’s external accounts. SBI Research also calls for clearer regulations regarding withholding tax on external commercial borrowings (ECBs), which currently ranges from 5% to 20%. The report stresses the need for consistent application of tax provisions to build investor confidence.

Observer Voice is the one stop site for National, International news, Sports, Editor’s Choice, Art/culture contents, Quotes and much more. We also cover historical contents. Historical contents includes World History, Indian History, and what happened today. The website also covers Entertainment across the India and World.

Follow Us on Twitter, Instagram, Facebook, & LinkedIn