FM Sitharaman points to foreign investor outflows and retail investor concerns ahead of the Budget.
Dubai: UAE-based non-resident Indians (NRIs) who own Indian shares face uncertainty over how much tax they will pay when selling their holdings after Finance Minister Nirmala Sitharaman said she would consider investors’ concerns about stock market levies. She did not specify which tax the government might revise or whether any relief would apply to shares investors already hold.
Speaking at an event this week, Sitharaman acknowledged concerns among retail investors as a prolonged market selloff fuelled calls for a review. “I quite appreciate” the concerns being raised and “I’ll consider all this,” she said, according to Bloomberg.
Her remarks follow an October rally in Indian stocks after Sitharaman said she was open to hearing views on market taxes. Her latest comments highlighted the pressures behind those calls, including weaker equity markets and foreign investor withdrawals. She also said foreign investors had recently started returning.
Selloff puts taxes back in focus
Indian shares are among Asia’s worst-performing markets this year and have underperformed emerging-market peers by the widest margin in more than three decades, Bloomberg reported. High oil prices and rising global bond yields have added to concerns over elevated valuations and weak earnings growth.
Sitharaman noted that India attracted strong foreign investment inflows in 2023 and 2024 under a broadly similar tax framework. However, the government raised equity tax rates in July 2024, increasing the rate on qualifying long-term capital gains from 10% to 12.5% and the short-term rate from 15% to 20%.
“The situation is very different now,” Sitharaman said. “Circumstances have changed, challenges have grown, more FII outflows have happened.” She said India needed capital to sustain economic growth of more than 7% and was hearing calls for greater support for equities after focusing on developing its bond market.
Existing NRI holdings in focus
The impact on UAE-based investors would depend on which levy the government decides to change. Securities transaction tax (STT) is charged on the value of a trade, so a reduction could lower the cost of selling shares, even for investors whose holdings have lost value during the downturn. A cut in long-term capital gains tax, meanwhile, would benefit those selling shares at a taxable profit.
Under current rules, India taxes qualifying gains on listed shares held for more than 12 months at a base rate of 12.5% on eligible annual gains exceeding Rs125,000. This threshold is significant because investors whose gains fall below it would see no direct benefit from a reduction in that rate alone.
SBI Research has separately proposed scrapping the tax on long-term equity gains while extending the required holding period to two or three years. Under such a proposal, shares that qualify as long-term holdings under current rules might not meet the longer period required for tax relief. Sitharaman has not endorsed the recommendation.
India typically presents its Union Budget in early February. For NRIs who already own Indian shares, key details to watch include whether any revised rules would apply to future sales of existing holdings and whether investors would need to hold shares for longer to qualify for relief.
Sitharaman has not given a timeline for a decision, and the existing tax rates remain in force.
