India mulls tax relief as foreign investment flows slow

India's government is examining whether reducing taxes on long-term capital gains and securities transactions could reverse a slowdown in foreign investment flows, according to officials familiar with policy discussions. The consideration comes as portfolio managers and institutional investors have reduced their exposure to Indian equities amid global economic uncertainty and rising interest rates internationally.

The potential adjustments to long-term capital gains tax (LTCG) and securities transaction tax (STT) represent a significant policy shift for New Delhi, which has relied on these levies as important revenue sources. Tax relief advocates argue that competitive rates would make Indian markets more attractive relative to regional alternatives and developed markets, potentially halting capital outflows.

Current LTCG rates impose a 20 percent tax on profits from securities held beyond one year, while STT adds transaction costs that some market participants claim deter foreign funds. Officials are studying how neighboring economies structure similar taxes to assess India's competitive position in attracting global capital.

The government faces a delicate balance between supporting market competitiveness and protecting fiscal revenues at a time when other economic priorities demand funding. Any tax policy modifications are expected to be debated within the finance ministry and parliament before implementation, with decisions likely dependent on broader economic trends and capital flow assessments.