The Securities and Exchange Board of India (SEBI) has proposed changes to the long-term capital gains tax (LTCG) to attract foreign investors and encourage domestic mutual fund investors to maintain their positions. These modifications have been proposed by two individuals with direct information on the issues, including India's efforts to stimulate its inferior stock markets. SEBI has also proposed a reduction in the LTCG tax rate for domestic investors, suggesting that they be exempt from the tax if they sell assets they already own to invest in new ones.

The proposals, which arrive months before the government's annual budget in February, are not mandatory and return to the government at the end. Indian stock markets have lagged behind emerging market peers over the past two years. Foreign investors have sold a record $31 billion worth of Indian stocks this year, and the share of capital gains has increased as interest rates have stagnated.

SEBI has proposed these modifications after numerous meetings with foreign investors during the preceding two years, as the continuous shift towards the outside has put pressure on the euro. A common feedback from investors has been the need to change how these investors are treated, as people have said. 'These proposals will reduce the tax burden at the beginning of capital, improving post-tax returns and eliminating an impediment that has prevented capital from being exported to India,' said Gary Tan, Portfolio Manager, Active Equity, Allspring Global Investments. However, this modification cannot take away concerns about the erosion of employment, a growth model based on labor arbitrage, added SEBI.

SEBI stated that transaction costs associated with investing in Indian stocks are among the highest among jurisdictions. Currently, investors pay a long-term capital gains tax rate of 12.5% for assets invested for more than one year and a short-term capital gains tax rate of 20%, in addition to transaction taxes and taxes on transfers.