Overseas investors demand status-quo on LTCG tax from Budget 2018

The Asia Securities Industry and Financial Markets Association (Asifma), a lobby for overseas investors, met with finance ministry officials last week amid buzz that the holding period to avail long-term capital gains (LTCG) in equities could be raised in the Union Budget.

Sources said foreign portfolio investors (FPIs) urged the government not to take such a decision as it would further escalate the cost of transaction and impact incremental flows into domestic equities.

Transaction cost for dealing with Indian shares is already one of the highest worldwide.

The recent policy measures taken by the government such as tweaks to the tax agreement with Mauritius and additional curbs on participatory notes (p-notes) have increased both the cost and the compliance burden on FPIs.

Experts say any further tweak could put India in a disadvantageous position compared to other emerging markets (EMs).

“FPIs are concerned about any tweak to the current long-term capital gains tax framework. It could also lead to a significant drop in FPI flows and lower the revenue for the government arising out of securities transaction tax (STT). Hence, we met the government officials to explain our apprehensions,” said a source.