SBI Research Proposes Scrapping LTCG Tax On Equities Amid Rs 3 Lakh Crore FPI Outflows

India’s foreign investors have pulled more than Rs 3 lakh crore out of equities in 2026. Now, SBI Research has proposed changes to tax rules and foreign exchange regulations to encourage foreign investments in India.

The SBI Ecowrap report has recommended scrapping the long-term capital gains (LTCG) tax on equities, alongside extending the holding period to 2-3 years to encourage foreign investors to keep their money in the domestic market for longer periods of time.

The proposals come at a time when global investors are shifting funds towards markets offering better returns, while high crude oil prices and a stronger dollar are weighing on Indian assets.

Demand For Longer Holding Period For Equity Investments

In its Ecowrap report released on October 12, 2026, SBI Research has called for the government to reconsider the LTCG tax on equities and explore ways to anchor volatile foreign capital flows.

Foreign portfolio investors (FPIs) currently pay a 12.50 per cent LTCG tax on equity investments. The Union Budget 2026 retained this rate for listed equities and equity mutual funds, following the tax changes introduced in 2024.

SBI Research has proposed removing the tax while extending the holding period to 2-3 years. The objective is to encourage longer investment horizons and reduce the likelihood of sudden foreign fund withdrawals that could put pressure on the rupee.

FPI Outflows Cross Rs 3 Lakh Crore In 2026

Foreign investors withdrew Rs 44,166 crore from Indian equities in October up to the date covered by the latest data. Their total withdrawals in 2026 have reached Rs 3.04 lakh crore, compared to Rs 1.66 lakh crore during the whole of 2025.

High crude oil prices, a stronger dollar and rising US bond yields have weighed on investor sentiment towards Indian equities. Foreign investors also have opportunities in North Asian markets, where stocks linked to artificial intelligence (AI) have attracted capital.

The lack of comparable AI-focused investment opportunities in India is another factor behind the selling. Higher yields in the US also offer investors an alternative source of returns with relatively lower risk.

Export Proceeds And ECB Tax Rules Under Review

SBI Research has also called for clearer rules on the repatriation of export earnings. It has proposed that exporters bring foreign currency earnings back to India within a reasonable period of around six months, in line with the credit periods they typically offer overseas buyers.

Any extension beyond six months should be considered on a case-by-case basis, the report recommended. Timely repatriation could help strengthen foreign currency inflows and support India's external accounts.

The report has also sought greater clarity on withholding tax rates for external commercial borrowings (ECBs), which currently range from 5-20 per cent.