Will Removing Long Term Capital Gain Tax Unlock Growth? Experts Highlight 5 Key Benefits

The Long-Term Capital Gains (LTCG) tax has been a hot topic in India's financial world, especially after the Union Budget 2024-25 increased the tax rate on stocks and mutual funds from 10% to 12.5%. The goal was to increase government revenue, but many investors and experts have criticized the move.

Well-known financial experts like Samir Arora (Founder & CIO, Helios Capital) and Deepak Shenoy (Founder & CEO, Capitalmind) have spoken against capital gains tax on foreign investors (FPIs), saying it discourages investment in India and makes the country less competitive globally. At the same time, Gurmeet Chaddha (CIO, Complete Circle Wealth) has suggested completely removing the LTCG tax and increasing the holding period for exemption to two years.

The big question is: Will removing the LTCG tax boost economic growth and attract more investments? Here's what the experts think.

At the Business Standard Manthan Summit 2025, Samir Arora, Founder and CIO of Helios Capital, strongly criticized India’s capital gains tax policy, calling it one of the biggest mistakes affecting investor sentiment, particularly for foreign investors. He argued that the imposition of capital gains tax on foreign portfolio investors (FPIs) has made India an outlier compared to most global markets and has discouraged foreign capital inflows.

Arora explained that the largest investors in global and Indian markets are institutions such as:

• Sovereign wealth funds (e.g., Government of Singapore, AIA, Canada Pension Plan)
• Pension funds (e.g., Canadian pension funds, Norges Bank)
• University endowments (e.g., Harvard, Princeton)
• High-net-worth individuals (HNWIs) from Singapore, Hong Kong, Dubai, and Monaco, many of whom are tax-exempt in their home countries

He pointed out that these investors pay zero capital gains tax when investing in the U.S., UK, and nearly 199 other countries, but face a 15-20% capital gains tax in India. Since these investors have no tax liability in their home countries, they cannot offset the tax paid in India, making India an unattractive investment destination.

"If you invest in the U.S., there is no tax. If you invest in India, you pay 15-20% tax, and you cannot recover it. No other major economy does this."

Are You Paying More Tax Than You Should? Master Capital Gains Law Now! Click here

Deepak Shenoy Calls for Removal of Capital Gains Tax on FPIs

In a recent post on X (formerly Twitter), Deepak Shenoy, Founder & CEO of Capitalmind, voiced his support for eliminating capital gains tax on Foreign Portfolio Investors (FPIs). He argued that India is one of the few countries imposing such a tax, making it less attractive to global investors.

Shenoy’s Post on X:

"It's useful to remove Indian cap gains taxes from FPIs. We should adopt the global standards on this. Of course, also happy to remove it from local investors :) but we are not so special that FPIs will come to India as the only country charging FPIs cap gains tax."

Chaddha Calls for LTCG Tax Removal in Social Media Appeal to FM Sitharaman

Gurmeet Chaddha, CIO of Complete Circle Wealth, has publicly urged Finance Minister Nirmala Sitharaman to abolish the Long-Term Capital Gains (LTCG) tax on equities while extending the holding period for tax exemption to two years.

In his social media post on X (formerly Twitter), Chaddha emphasized the long-term economic benefits of such a move, including higher Foreign Direct Investment (FDI), increased risk capital, enhanced PSU valuations, and job creation.

Chaddha’s Post on X (@connectgurmeet):

"Honourable FM @nsitharaman, one request – increase the tenure of LTCG for equities to 2 years & make tax nil. Let STCG tax remain as it is. We will gain immensely in the long term in the form of FDI, risk capital to fund our capex, more value for PSUs, and ultimately jobs. In the short run, higher STT will make up for revenue also."

Why Experts Are Pushing for LTCG Tax Removal?

1. Increased Foreign Direct Investment (FDI) & Capital Inflows

• Foreign investors are discouraged by India’s capital gains tax, as most major economies—including the U.S., UK, Singapore, and 199 other countries—do not tax FPIs on capital gains.
• Samir Arora has explained that the biggest investors in Indian markets are global institutions such as sovereign wealth funds, pension funds, university endowments, and high-net-worth individuals (HNWIs). These entities pay zero tax in their home countries, making India’s 15-20% capital gains tax a significant deterrent.
• Deepak Shenoy also pointed out that FPIs have better tax options elsewhere, making it unlikely that they will choose India if the capital gains tax remains.

Are You Paying More Tax Than You Should? Master Capital Gains Law Now! Click here

2. Stronger Private Equity Ecosystem & Economic Growth

• Private equity (PE) investors play an important role in funding India’s startups, infrastructure, and industrial expansion. However, without a clear and tax-efficient exit strategy, private equity funds hesitate to invest in Indian businesses.
• The presence of active FPIs provides an exit route for private equity funds, as they can sell their stakes in listed companies and convert their investments into dollars.
• Without foreign institutional investors (FIIs) ensuring liquidity, PE investments may slow down, reducing capital for business growth, job creation, and innovation.

3. Higher Valuations for Public Sector Undertakings (PSUs) & Domestic Companies

• Increased foreign investment in Indian markets leads to higher demand for stocks, raising market valuations.
• Samir Arora noted that PSUs (Public Sector Undertakings) would benefit significantly from this move, as more global investors would be willing to invest in Indian government-backed companies.
• Higher stock valuations for Indian companies could also improve their ability to raise capital efficiently.

4. Job Creation & Boost to Indian Startups

• The flow of foreign capital into India’s equity markets creates a positive chain reaction—businesses receive more funding, expand operations, and generate employment.
• If the LTCG tax is removed, India could see higher investments in infrastructure, manufacturing, and technology, leading to millions of new jobs in the long term.
• As Chaddha pointed out, removing the LTCG tax could be an economic catalyst, increasing risk capital to fund major capital expenditures (capex) across industries.

5. Higher Securities Transaction Tax (STT) Could Offset Revenue Loss

• One of the government’s biggest concerns is that removing the LTCG tax could reduce tax revenue. Experts argue that this can be compensated through higher Securities Transaction Tax (STT).
• Chaddha’s proposal includes increasing STT to make up for short-term revenue loss while removing the LTCG tax to encourage long-term investments.
• Higher market participation due to increased FPI and PE investments would lead to greater tax collection through STT and corporate taxes, balancing the revenue equation.

Are You Paying More Tax Than You Should? Master Capital Gains Law Now! Click here

Will the Government Rethink Its Capital Gains Tax Policy?

The government may need to reconsider its stance on LTCG tax, especially for FPIs. If India wants to maintain its attractiveness as a top investment destination, aligning with global tax policies could be a necessary step.

Potential Outcomes:

• Scenario 1: LTCG Tax Removed for FPIs - This would instantly boost foreign investments, increasing liquidity and improving market sentiment.
• Scenario 2: LTCG Tenure Extended to 2 Years - If full removal is not possible, extending the holding period for tax exemption (as suggested by Chaddha) could encourage longer-term investments.
• Scenario 3: Status Quo Maintained - If no changes are made, India risks losing capital flows to other markets like the U.S., Singapore, and Europe.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates