SEBI Backs LTCG Tax Relief: Shankar Sharma, Samir Arora’s Earlier Views

SEBI’s Tax Proposal Puts Foreign Investor Confidence in Focus

The regulator’s pre-Budget recommendation revives a debate over whether easing capital-gains taxes could help restore overseas appetite for Indian equities.

A recommendation, not yet a change in tax policy

SEBI’s proposal is part of its representations to the government ahead of the Budget. It does not, by itself, alter the tax treatment of foreign investors. Any change would depend on a government decision, so investors should distinguish the regulator’s recommendation from an enacted measure.

The issue has gained urgency amid a difficult backdrop for Indian equities. The source reports that overseas investors’ net selling has reached a record $31 billion this year, while Indian shares have underperformed emerging-market peers over the past two years. It also notes increased overseas investment by Indian retail investors as returns at home have remained subdued. These trends explain why policymakers and market participants are discussing ways to make the market more attractive, though they do not establish that tax is the sole reason for foreign outflows.

Why Sharma links tax treatment to dollar inflows

At a recent Business Standard summit, investor Shankar Sharma argued that India should make it easier for foreign capital to enter, including by removing capital-gains tax and using measures such as lower taxes, global roadshows and special investment vehicles. He connected the case for attracting overseas investment to India’s current-account and balance-of-payments concerns, arguing that dollar inflows could provide breathing room.

That is an argument for treating tax policy as one part of a broader effort to attract capital, not a guarantee that tax relief would produce a particular flow of funds. Sharma himself described capital-gains tax as one of several factors that can act as a barrier. For investors, the distinction matters: a more favourable tax regime may improve the proposition, but it would not by itself resolve every concern affecting investment decisions.

Arora’s case centres on sentiment and investor costs

Helios Capital founder Samir Arora has also called for the levy to be waived, describing it as damaging to sentiment. He pointed to foreign sovereign funds, pension funds, universities and high-net-worth individuals as important participants in global and Indian markets. In his view, taxing gains adds to the burden on overseas investors, who also face currency-related risks and may not have access to tax set-offs in their home countries.

Together, the arguments frame the debate around competitiveness and the cost of investing in India. The counterpoint for policymakers is whether removing the tax would attract enough additional capital to justify the fiscal trade-off. The source provides no estimate of the potential revenue impact or the amount of investment that tax relief might bring, leaving those questions central to any government assessment.

What investors should watch next

The next signal is whether the government takes up SEBI’s recommendation and, if it does, what form any change would take. Until a decision is announced, the proposal should be viewed as a policy discussion rather than a near-certain catalyst for foreign buying. Even if a change is made, investors would need to assess whether it meaningfully shifts overseas investors’ calculations alongside other market and economic factors.

For Indian retail investors, the debate is relevant because overseas flows can influence market sentiment, but tax relief alone cannot assure a durable reversal in flows or stronger equity returns. The recommendation puts the investment climate under scrutiny; its eventual significance will depend on the government’s response and how investors react.

Key Highlights

• SEBI has recommended removing LTCG tax for foreign investors as part of its pre-Budget representations.
• The proposal is not a policy change; the government would need to decide whether to act on it.
• Foreign investors’ net selling of Indian stocks has reached a reported record $31 billion this year.
• Shankar Sharma links easier foreign investment with India’s external funding concerns and argues for broader steps to attract capital.
• Samir Arora says the tax weighs on sentiment and adds to costs for overseas investors facing currency risks.
• The source does not quantify the potential fiscal cost or investment response to a tax waiver.

Investor Note: Treat SEBI’s recommendation as a policy signal, not an assurance of tax relief or a forecast of foreign inflows. Investors should wait for a government decision and avoid basing equity decisions on the proposal alone.