Stories
India Should Review Capital Gains Tax on FIIs to Strengthen Markets Says Enam s Vallabh Bhanshali
- •Vallabh Bhanshali of Enam Group stated that India must review long term capital gains taxation for foreign institutional investors to boost capital markets.
- •He noted that the levy has significantly impacted foreign portfolio flows and urged the removal of regulatory irritants discouraging overseas investors.
- •Bhanshali remains positive on broader markets, expecting corporate earnings to grow 20 to 25 percent year-on-year driven by a sustained capex cycle and manufacturing expansion.
- •He praised the evolution of India's IPO market but suggested safeguards to ensure capital raised locally by foreign companies is deployed within the country.
Key Questions Answered
Vallabh Bhanshali stated that India should review long-term capital gains taxation for foreign institutional investors to help strengthen the country's capital markets. He noted that India's levy is an outlier globally and suggested that removing such regulatory friction would make the policy environment more competitive.
India's capital gains tax structure creates structural friction that can shave up to 2.4 percentage points off post-tax annual returns for foreign portfolio investors over a five-year horizon. This tax drag arises because funds must provide daily for unrealised gains and many overseas investors cannot claim full tax credits in their home jurisdictions.
The government issued an income-tax ordinance granting tax relief to foreign institutional investors on investments in Indian government securities, exempting both interest and capital gains from taxation starting April 1, 2026. Additionally, the government removed the tax deduction at source requirement on foreign market-related inflows while announcing FCNR(B) deposits.
