India's long-term capital gains tax on equities, reintroduced in 2018 after a decade-long absence, has quietly become one of the most contentious policy levers affecting foreign portfolio flows. Aditya Shah, Founder of Hercules Advisors, says the government can no longer afford to sit on the fence: a complete removal of LTCG for foreign investors is the only credible signal that will bring FPIs back.
"If you want foreigners to come and invest in India, you cannot have a taxation format which is much different from any other country around the world," says Shah.
Shah acknowledges that the government is now showing willingness to reconsider its position — partly driven by the sharp depreciation of the rupee, which has itself been worsened by sustained FPI selling. He welcomes this as a positive first step, but cautions that tweaks to the LTCG threshold or holding period will not move the needle. Only a clean, unconditional removal for foreign investors will restore India's competitiveness as an investment destination.
