FPIs seek review of taxes faced by them, say some face double taxation

NEW DELHI: Amid outflows, foreign portfolio investors (FPIs) have sought a review of the taxes applicable on them, especially capital gains.

Those familiar with the deliberations said the issue has been raised with market regulator Sebi as well as govt officials with certainty in tax policies being underlined repeatedly.

Apart from high cost of trading in India due to several levies and charges - brokerage, stamp duty, securities transaction tax (STT), Sebi turnover fees, exchange transaction fees and custody fees - representatives of FPIs have also argued that for certain overseas investors, there is double taxation due to capital gains tax.

These players have argued that FPIs face capital gains tax on their investments in Indian securities. Besides, investors in these funds can be taxed again in their home countries when they receive the distribution from the FPI. Further, they have argued that foreign tax credits - capital gains tax paid by FPIs to be used as credits to offset taxes on the investors in the investor's home country - are often unavailable or difficult to obtain in practice.

"This is because of the way investments are typically made (through funds), and also due to the complex foreign tax credit regimes," a tax expert said. The funds have argued that India remains among a few countries globally that levies STT as well as capital gains tax, which was not the case until 2018. Before 2004, capital gains on listed equity securities were taxable in India, but LTCG was abolished in this segment when STT was introduced in 2004. In 2018, LTCG on listed equity transactions made a comeback - at 10% over a specified threshold, which was increased to 12.5% last year.

A tax specialist at a leading consulting firm said that to the higher cost, there is a loss of attractiveness for the Indian market at this time. In addition, computation related issues, restrictions on set-off of capital losses under specific situations and delays in refunds have been flagged.

So far this year, FPIs have sold equity of Rs 33,600 crore on a net basis, the highest monthly sales since Aug when they were sellers to the tune of Rs 35,000 crore. In 2025, FPIs' net sales were pegged at nearly Rs 1.7 lakh crore, according to data on the NSDL website.

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