Aditya Shah, Founder of Hercules Advisors, has called for India to abolish its long-term capital gains tax on equities for foreign investors, arguing it deters crucial portfolio inflows. According to reports from The Economic Times, Shah contends that removing the tax is the only credible signal to attract foreign capital, which is vital for lowering the cost of capital and deepening markets. He emphasizes that 'If you want foreigners to come and invest in India, you cannot have a taxation format which is much different from any other country around the world.' Shah now says the government can no longer afford to sit on the fence: a complete removal of LTCG for foreign investors is the only credible signal that will bring FPIs back.
India's long-term capital gains tax on equities, reintroduced in 2018 after a decade-long absence, has quietly become one of the most contentious policy levers affecting foreign portfolio flows. As reported by The Economic Times, Shah acknowledges that the government is now showing willingness to reconsider its position — partly driven by the sharp depreciation of the rupee, which has itself been worsened by sustained FPI selling. He welcomes this as a positive first step, but cautions that tweaks to the LTCG threshold or holding period will not move the needle. Shah argues that only a clean, unconditional removal for foreign investors will restore India's competitiveness as an investment destination. The backdrop to Shah's comments is a market that has absorbed multiple shocks simultaneously: FPI outflows, a weakening rupee, and geopolitical tensions including the US-Iran conflict.
Shah presents a comprehensive argument for removing the tax, highlighting three key points according to The Economic Times. His case includes India's LTCG framework being out of step with global peers, noting that no comparable emerging market levies capital gains on foreign portfolio inflows at this rate. He argues that the revenue lost from removing the tax is far outweighed by indirect gains: lower cost of capital, higher employment, and deeper equity markets. Additionally, Shah contends that reverting to the pre-2018 regime, where LTCG did not exist, would send an unambiguous signal that India is open for foreign investment.
Finance Minister Nirmala Sitharaman has indicated the government is ready to listen to stock market investors, with concerns regarding Long-Term Capital Gains and Short-Term Capital Gains taxes being considered. As reported by The Economic Times, the Minister emphasized openness to feedback on taxation matters, coming amid market volatility and discussions on investor sentiment. The government is engaging with stakeholders on market-related tax issues, providing a potential pathway for policy reform. This development aligns with Shah's call for policy clarity on LTCG as the most effective lever available to arrest sentiment slide and rebuild India's appeal. The government's willingness to consider tax reforms comes as policy consistency is also a major concern for global funds, with experts urging India to rethink taxes like STT and LTCG to boost investor confidence and market stability.
