The clarification follows a decision last month to exempt FPIs from LTCG tax on investments in government securities, a move aimed at supporting the rupee and reviving overseas flows.
FPIs have sold about $28.03 billion worth of Indian equities so far in 2026, with elevated crude prices and the rupee’s slide to record lows weighing on sentiment.
However, the trend has improved in July, with overseas investors buying $1.25 billion of shares so far this month.
India’s Nifty 50 has lost about 7.2% so far in 2026, underperforming other emerging market and Asian peers, despite sustained buying by domestic investors.
Domestic and retail investors will continue to pay a 12.5% LTCG tax on qualifying equity gains.
Minister of State for Finance Pankaj Chaudhary said the 12.5% rate for domestic and retail investors is the same as that applicable to FPIs for equity investments, and clarified that the recent tax rationalisation applies only to FPI investments in government securities. The exemption, effective April 1, 2026, is intended to align India’s taxation of government securities with that of comparable jurisdictions and attract stable, long-term foreign capital from pension funds, insurers and sovereign wealth funds.
The stance also reflects the fiscal importance of the LTCG tax. Collections from the LTCG tax on equities rose to 1.29 trillion rupees ($13.38 billion) in the assessment year 2025-26 from 722.49 billion rupees a year earlier.