LTCG tax at 12.5%: what Sebi's foreign investor proposal changes

What is the LTCG tax, and what does it charge today?

LTCG tax is the tax on the profit from selling an asset after holding it past a set period. For listed Indian equity, that period is more than 12 months.

As of 2 November 2026, Mint reports that foreign investors pay 12.5% LTCG tax on eligible equity held for more than 12 months. Equity sold within 12 months pays a 20% short-term capital gains (STCG) tax. Securities transaction tax (STT) on trades and withholding tax on dividends come on top.

Those are the rates the reports quote, and they are the rates the proposal starts from. A resident investor's own bill depends on facts the reports do not cover, so read the rule for your own case before you act on any figure here.

Source: Mint, read 3 November 2026.

What exactly did Sebi propose?

Two things, according to Reuters as carried by the Economic Times. The first is that the government scrap the LTCG tax on foreign investors. The second is relief for domestic mutual fund investors who sell existing holdings to buy new ones.

The second proposal is narrower than it sounds. Per the report, switching from one mutual fund scheme to another would not count as a taxable sale if the units were held for more than a year.

Both reports rest on two unnamed sources with direct knowledge of the matter. The Economic Times says Sebi and the finance ministry did not answer its email queries. The recommendations are part of Sebi's pre-budget representations, and the annual budget is due in February.

Source: Economic Times (Reuters), last updated 2 November 2026, read 3 November 2026.

Why would the regulator ask for it?

Foreign money is leaving. The Economic Times reports that foreign investors have sold a record $31 billion of Indian stocks in 2026. Mint puts foreign outflows at more than ₹2.34 lakh crore for the year.

Sebi's own reading, as reported, is that transaction costs on Indian equities are among the highest across jurisdictions. One of the two sources said the proposals aim at reducing the upfront tax burden on foreign investors.

The reports add that the recommendations follow scores of meetings Sebi held with foreign investors over two years. One consistent piece of feedback, per the sources, was that India's tax treatment needed to change.

Mint also lists three changes the brokerage Jefferies has outlined. The first cuts both LTCG and STCG rates for all investors. The second reduces LTCG only for foreign portfolio investors. The third lets foreign portfolio investors compute gains in US dollar terms, which removes currency movement from the tax bill. Sebi's reported proposal is the second of these, plus the switching relief.

Source: Economic Times and Mint, read 3 November 2026.

What does a resident holder need to do?

Nothing, today. A resident holder is not covered by the first proposal at all, because it names foreign investors. The switching proposal would reach a resident, but only if the government adopts it.

A worked example shows what is at stake in the switching idea. Take a mutual fund holding bought for ₹10 lakh and now worth ₹12 lakh, held for more than a year. Under the rule as reported, a switch into another scheme is a sale, so the ₹2 lakh gain is taxed at 12.5%.

The arithmetic is ₹2,00,000 × 12.5% = ₹25,000, before any exemption limit that applies to you. Under Sebi's reported proposal, that switch would not be a taxable sale. The ₹25,000 would not fall due at the switch.

The idea moves when tax falls due on a switch. The reports do not say it changes the rate on the final sale.

My view is that a tax proposal reported before a budget is a reason to read the rule, and too early a reason to move a holding. Budgets reshape proposals, and a recommendation that reaches the finance ministry can leave it changed or untouched.

How is the crypto regime different?

Crypto sits under a separate rule. India taxes gains on virtual digital assets under section 115BBH of the Income Tax Act, 1961, at a flat 30%. Section 194S adds 1% tax deducted at source on the transfer, above a monetary threshold.

Section 115BBH allows no deduction except the cost of acquisition. It also allows no set-off of a loss from one virtual digital asset against other income, and no carry forward of the loss to later years.

There is no holding-period test in that regime, so the 12-month line that decides the equity rate plays no part in it. The Sebi proposal, as reported, touches equity and mutual fund switching only. Nothing in either report mentions virtual digital assets.

Source: section 115BBH and 194S text as reproduced by Taxguru, read 3 November 2026.

On Qatobit, the investor's sale of a basket is the taxable event, and a monthly rebalance inside an index is not. Inside a basket, a loss on one token offsets a gain on another, because the taxable event is the sale of the basket rather than the sale of each coin.

How should a portfolio holder read a pre-budget report?

Start with the source. Both reports rest on unnamed sources, and neither Sebi nor the ministry has confirmed. Treat the figure as reported until it is announced.

Then the audience. A proposal for foreign investors changes who pays, and a resident's bill stays where it is. The switching proposal moves the timing of the tax.

Last, the date a rule would apply. A tax change that is adopted usually carries an effective date, and the date decides which sales it reaches. Until it is notified, the rule you hold today is the rule that applies.

For the allocation side of the same question, see what a crypto index is and why rebalancing is a rule rather than a reaction. A tax headline is a prompt to check the position size and exit plan you already hold.

Frequently asked questions

Has the LTCG tax on foreign investors been removed?

No. Sebi has reportedly recommended removing the 12.5% LTCG tax for foreign investors, and the recommendation is non-binding. As of 2 November 2026 the final call rests with the government.

What is the LTCG tax rate on equity as reported?

Mint reports 12.5% on eligible equity held for more than 12 months, and 20% STCG tax on equity held for 12 months or less. STT and dividend withholding tax apply on top.

Does the proposal change anything for a resident investor?

Not today. The first proposal names foreign investors. The second, on switching between mutual fund schemes after a year's holding, would reach a resident only if the government adopts it.

Does this change how crypto is taxed in India?

No report mentions it. Gains on virtual digital assets are taxed at 30% under section 115BBH with 1% TDS under section 194S, with no set-off or carry forward of losses.

When will the outcome be known?

The reports place the recommendation before the annual budget, which is due in February. Neither the finance ministry nor Sebi has confirmed it.

Crypto investments are subject to market risk. Not financial advice.