Has SEBI Asked to Remove LTCG Tax for Foreign Investors? FII LTCG Tax Explained

01Status check: reported recommendation, not a confirmed tax change

Reuters reported on 2 November 2026 that SEBI, the Securities and Exchange Board of India, has asked the Government to remove long-term capital gains (LTCG) tax for foreign investors. LTCG is the tax on the profit from a share held for more than 12 months. This does not mean the tax has been removed.

The report says the idea is not binding. It is part of SEBI's requests before the Budget, and the Government makes the final decision. When this article was written, we could not find a public SEBI notice that changes the LTCG rate on shares. So the current tax rules still apply, unless the law changes.

In one line: Reuters says SEBI has recommended an FPI LTCG tax cut. There is no tax cut on shares in the law yet.

02What exactly has SEBI reportedly proposed?

According to Reuters, SEBI has recommended removing the LTCG tax on foreign investors. It did this in its requests before the next Union Budget. The Union Budget is the Government's yearly plan for taxes and spending. The report is based on 2 people with direct knowledge of the matter.

The report also says the proposal is not binding. SEBI and the Finance Ministry had not answered Reuters' questions when the report came out.

The same report describes a second idea, for Indian mutual fund investors. Moving money from one scheme to another after holding units for more than a year could get tax relief. That, too, is only a reported recommendation. Its exact legal scope and conditions are not public.

This difference matters. A headline such as “SEBI removes LTCG tax” would be wrong today. SEBI can recommend changes to market rules. But a tax rate changes only when the Government brings the legal change and it becomes law.

03Is FII LTCG tax already removed?

No. The current rules still apply.

NSE's updated tax guide for foreign investors explains Section 210 of the Income-tax Act, 2025. It gives a 20% base rate on qualifying short-term gains from shares where STT was paid. STT, the Securities Transaction Tax, is a small tax on each share trade. STCG, short-term capital gains, is the profit on a share held for 12 months or less. Qualifying long-term gains have a 12.5% base rate.

For long-term gains covered by Section 198, the 12.5% rate applies only to the amount above ₹1.25 lakh. These are base rates before cess and surcharge. A cess and a surcharge are extra amounts added on top of the tax. Other securities may follow different rules.

04FII or FPI: which term should investors use?

Many people still search for FII, or Foreign Institutional Investor. SEBI's current rules use FPI, or Foreign Portfolio Investor. An FPI is a foreign fund or investor that buys Indian shares or bonds as an investment.

Section 210 of the Income-tax Act, 2025 still uses the term FII. NSE explains that FPIs registered with SEBI are covered by that part of the tax law.

For a beginner, the simplest way to read the news is this. The reported recommendation is aimed at foreign portfolio money invested in Indian markets. If the Government later publishes a proposal, that official text will decide which investors and securities qualify.

05Why would SEBI want a lower tax for foreign investors?

Reuters says the idea follows many talks with foreign investors, where tax kept coming up as a concern. The report also says foreign investors have sold a record of about $31 billion of Indian shares in 2026. India's share market has also done worse than other emerging markets. An emerging market is a country whose economy is still growing fast.

A lower capital gains tax leaves an investor with more of the profit after tax. That can make India more attractive when a global fund compares Indian shares with markets that tax foreign investors less.

But tax is only one part of the choice. A foreign fund also looks at company earnings, share prices, the rupee, interest rates and crude oil. It looks at political and war risk, how easily shares can be bought and sold, and the returns in other countries.

06Would removing LTCG tax bring FII/FPI money back to India?

It could help, but it would not promise a return of foreign money.

So a tax cut can make investing in India pay better. But on its own it cannot fix weak earnings, high share prices or a global mood of selling risky assets.

07What could an FPI LTCG tax cut mean for NIFTY?

Suppose the Government does remove the tax one day. If the change is big enough to raise foreign demand for Indian shares, it could lift the market mood and the flow of money. Large foreign investors move a lot of money. So a change in how keen they are to hold Indian shares can affect demand for the index.

That still does not mean “LTCG removed = NIFTY must rise”. An index moves for many reasons at the same time. A Reuters market report on 2 November named tax relief hopes as one positive factor. It also pointed to big company earnings and lower crude oil prices.

A useful habit is to keep a possible trigger apart from a sure result. Our article on why the stock market falls uses the same idea the other way round. First find the trigger. Then check whether other evidence supports it.

08A simple ₹1 crore example: why the tax matters

Suppose a foreign portfolio investor has ₹1 crore of qualifying long-term gain on listed shares. The investor meets the Section 198 conditions and has not used the ₹1.25 lakh allowance anywhere else. For this example, leave out surcharge, cess, treaty effects and every other detail.

• Long-term gain: ₹1,00,00,000
• Less the Section 198 allowance used here: ₹1,25,000
• Amount taxed in this simple example: ₹98,75,000
• Base tax at 12.5%: ₹12,34,375

If a future law made the same qualifying FPI gain fully free of LTCG, that base tax would fall to zero. That gap shows why the proposal matters to global funds. But zero is only a what-if until a law actually says so.

09Does the reported proposal change tax for Indian retail investors?

No current retail tax rule changes because of this report. A retail investor is a person who invests their own money.

Reuters also reported a second SEBI idea. It is tax relief when an Indian mutual fund investor moves from one scheme to another after holding for more than a year. That could make switching cheaper if the Government accepts it. But there is no published legal way to do it yet.

Do not assume that an FPI exemption would apply to every Indian investor. The Government could accept one part of the reported idea, reject another, change its scope, or do nothing.

10What happens next if the Government wants to accept the idea?

A recommendation can change or stop before it becomes law. These are the 5 steps it would need.

1. SEBI makes a recommendation. Reuters says this has happened, in a request before the Budget.
2. The Finance Ministry considers it. The Government can accept, change or reject it.
3. A Budget or Finance Bill publishes the actual wording. A Finance Bill is the draft law that carries the Budget's tax changes. This is when investors can see the exact rate, assets, investors, conditions and start date.
4. Parliament considers the legal change. A Budget speech or a news report is not the same as a tax rule that has been passed.
5. The new rule takes effect. Only then should tax calculators, guidance and investment plans be updated.

Until official legal text appears, the safest name for it is “reported SEBI recommendation”.

11How can you verify future headlines about FPI LTCG tax?

1. 1Proposal or law?Look for the Finance Bill, the Finance Act or another official tax notice, not only a news headline.
2. 2Who is covered?Check whether the text says FPIs, all non-residents, mutual funds, resident investors, or everyone.
3. 3Which asset is covered?Shares are not the same as Government Securities. In 2026 the Government separately announced tax relief for foreign investors in some Government Securities. That does not mean LTCG on shares was already removed.
4. 4When does it start?Tax changes often name the date from which a sale is covered.
5. 5What stays the same?A change to LTCG does not by itself remove STCG, STT, dividend tax or other costs.

This checklist is more useful than trading on the first headline.

12Work out today's share tax on the capital gains calculator

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