Abolishing Capital Gains Tax on FIIs can be a game changer for India?

Markets Discussions
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At the Business Standard Manthan Summit 2025, Samir Arora, Founder and CIO of Helios Capital, expressed strong concerns over the Indian government’s decision to raise capital gains tax. He described the move as a significant misstep, particularly for foreign institutional investors (FIIs), and warned of its long-term consequences on investor sentiment and market stability.

Key Concerns Raised:

  • FII Sell-Offs – Foreign investors have been offloading Indian equities for five consecutive months, with outflows reaching ₹1 trillion in the past two months.
  • Market Reaction – Following the Budget announcement, the Sensex declined by 1,414 points (-1.9%), the Nifty fell 420 points (-1.86%), and the total market capitalization of BSE-listed companies contracted by ₹9 lakh crore.
  • Impact on Foreign Investors – Institutional investors such as sovereign funds, pension funds, and high-net-worth individuals, already facing currency risks, now have the added burden of higher taxes without the ability to offset them in their home countries.

Policy Changes Introduced in the Budget:

  • Long-Term Capital Gains (LTCG) Tax increased from 10% to 12.5%.
  • Short-Term Capital Gains (STCG) Tax raised from 15% to 20%.

Arora pointed out that while India collected $10-11 billion in capital gains tax in FY23, the long-term impact on foreign investment flows may outweigh the short-term revenue gains. He suggested that India should reconsider capital gains taxation to maintain its attractiveness as an investment destination.

  • Do you believe the capital gains tax hike will discourage long-term foreign investment in India?
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The capital gains tax hike seems like a risky move :rotating_light:, especially given the sharp FII sell-offs and market downturn :chart_with_downwards_trend:. While it may boost short-term revenue, the long-term impact on foreign investment could be far more damaging.

With India competing for global capital, higher taxes + currency risks might push investors to more tax-friendly markets :earth_africa:. A smarter approach could be tax incentives for long-term investors or phased adjustments to maintain India’s appeal :bulb:.

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FIIs started selling even before the LTCG hike. The 2.5% extra tax is not the reason why they are selling.

Besides I if salaried class and traders can pay more than 30% the rich investors shouldn’t be let off with a smaller tax…:slightly_smiling_face:

Besides there are only few who buys and holds for life. Most so called investors are just traders holding for a short period of time only…:face_with_hand_over_mouth:

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It is not about tax increase that FII are selling. As quoted by @t7support that FII were already sellers before the tax hike

FII are opportunist who just want to make money, it doesn’t matter to them if it’s from India or other countries. Earlier Chinese markets gave returns to FII, now US market’s political rally is making them money.

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Then, what is SEBI for.

If they are opportunistic, and has no contribution to economy, creates disruption… Fake jump to stocks…
Which is false picture of economy…
Then SEBI is fool to make our own national economy and companies vulnerable to these vultures…

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Take it this way
Let’s say you have 100 crores to trade, you find a set of micro cap companies and start buying them one by one. Because of your capital size, the company hit upper circuits. This is where you find another set of micro cap companies and rotate your money there.

Did you do anything wrong? You have large capital that’s why it looked like pump and dump which actually isn’t.

This is what is happening with FII investment in India.

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It’s best to remove the weakest link in the chain as quickly as possible.

With domestic money steadily moving into the secondary markets, it’s clear that stock valuations can rise and flourish even without foreign institutional investors.

Foreign investors have been permitted to participate beyond manageable risk levels, which has now been shown to be problematic.

It would be wise to let them pull out while valuations remain low, and once they are done, put a ceiling on Country wise participation.

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@Vanshjoon @Loukik_Jadhav @Yesha_Modi @equity_engineer @manoj_reddy @FOR_STOCKS @Krish_Mehta @Bengal_tms @Nilkanthraval @Waseem_Mansuri @OmGaikwad @jaswantTrader @Kuldeep_Khaladkar what are your views on this?

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An interesting perspective below

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Thanks for sharing the post. It made my day :relieved:

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Also for FIIs, some of them are routing money again in India via the AIF Route via GIFT City. Imagine an FII who is currently investing in India via Normal route, when they sell, they need to pay the capital gain tax. Instead, they will opt for transferring the money (by selling in Domestic) via an FME and instead betting using derivatives. This will enable them low transaction costs and no taxes.

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Thanks for sharing this different view of the situation.

I’ve often experienced that the real reason for a change of institutional sentiments in the financial market isn’t always the easiest or the most typical explanation people talk about.