FPIs sell record ₹3.08 lakh crore in Indian equities through October 12, 2026
GS3Economy · S&T · Environment · Security· Capital markets & SEBI· Mains·
Capital gains tax structure and its impact on attracting global equity capital: a GS3 Economy case study.
Why in news
The Ministry of Finance confirmed that Foreign Portfolio Investors (FPIs) pay a 12.5% Long-Term Capital Gains (LTCG) tax, which critics argue creates a significant return drag compared to global indices like the S&P 500.
Background
FPIs sold a record ₹3.08 lakh crore in Indian equities through October 12, 2026, following a sale of ₹1.66 lakh crore in 2025. The Finance (No. 2) Act, 2024, sets LTCG at 12.5% and Short-Term Capital Gains (STCG) at 20% for listed equities.
Facts for Prelims
- FactFPIs sold ₹3.08 lakh crore in Indian equities through October 12, 2026
- Act / BillFinance (No. 2) Act, 2024, prescribes 12.5% LTCG and 20% STCG on listed equity
- FactFPIs pay the same 12.5% LTCG as resident investors
- FactChina exempts foreign investors from tax on A-share gains through Circulars 79 and 81
Prelims practice question
With reference to the capital gains tax structure for Foreign Portfolio Investors (FPIs) in India, consider the following statements:
- FPIs are subject to a Short-Term Capital Gains (STCG) tax of 15% on listed equities.
- China exempts foreign investors from tax on A-share gains through Circulars 79 and 81.
- The Finance (No. 2) Act, 2024 prescribes a Long-Term Capital Gains (LTCG) tax of 12.5% on listed equities.
Which of the statements given above is/are correct?
- (a)1 only
- (b)3 only
- (c)1 and 2 only
- (d)2 and 3 only
Show answer
Answer: (d) 2 and 3 only — Statements 2 and 3 are correct. Statement 1 is incorrect: The Finance (No. 2) Act, 2024 prescribes STCG at 20%.
For Mains
Q. Critically analyze how India's current capital gains tax structure for foreign portfolio investors impacts the country's ability to attract global equity capital.
Dimensions to cover in your answer
- Fiscal-Investment Trade-off: Balancing domestic tax revenue from capital gains against the need for sustained foreign equity inflows.
- Global Competitiveness: Comparison with zero-tax jurisdictions like Singapore and UAE in attracting global portfolio flows.
- Currency Depreciation Impact: Compounding effect of rupee depreciation and tax drag on net dollar returns for foreign investors.
Keywords: Foreign Portfolio Investors · Capital Gains Tax · Capital Markets · Fiscal Policy · Investment Climate · S&P 500
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