A possible rethink of securities transaction tax and capital gains tax could improve returns for overseas Indians investing in Indian equities, but no changes have been announced
UAE-based non-resident Indians (NRIs) investing in Indian shares are hoping for tax relief after Finance Minister Nirmala Sitharaman indicated that the government was willing to hear investors’ concerns about the taxation of equity investments.
Speaking at the Bloomberg New Economy Forum in New Delhi, Sitharaman said the debate was worth having and that she would listen to the views being raised. Her remarks have fuelled expectations of a possible review ahead of the Union Budget in February, although she did not commit to reducing or abolishing any tax.
The discussion centres on two levies: securities transaction tax (STT), charged on specified market transactions, and capital gains tax, which applies to taxable profits from selling investments.
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Under the current rules, purchases and sales of listed Indian shares through ordinary delivery-based transactions generally attract STT of 0.1% on each side
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For qualifying listed shares and equity-oriented mutual funds, short-term capital gains are generally taxed at 20%, while long-term gains are taxed at 12.5% on eligible profits exceeding Rs 1.25 lakh in a financial year
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Applicable cess and surcharge can increase the final liability.
For example, an investor buying shares worth Rs 10 lakh and selling them for Rs 15 lakh after holding them for more than 12 months would make a profit of Rs 5 lakh. Assuming this is the investor’s only eligible long-term equity gain, the base capital gains tax would be Rs 46,875 after the annual exemption. Including the 4% health and education cess, the bill would rise to Rs 48,750, excluding STT, brokerage and other charges.
Removing STT would reduce transaction costs, while scrapping long-term capital gains tax could provide a larger saving for investors who make substantial profits. However, these are hypothetical outcomes, not announced policy changes.
SBI Research has separately recommended removing tax on long-term equity gains in exchange for a longer holding period of two or three years. The proposal remains a recommendation rather than government policy.
For UAE-based NRIs, living abroad does not automatically exempt Indian investment income from Indian taxation. Eligibility for any future relief would depend on the final rules, including which investments qualify and when the changes take effect.
Until the government announces and implements a change, existing tax provisions remain in force. Investors should therefore avoid making financial decisions on the assumption that either levy will be abolished.
