SEBI LTCG Proposal Seeks Relief for FPIs and Fund Switches

SEBI has reportedly asked the government to scrap the 12.5% long-term capital gains tax on foreign investors and to stop taxing mutual fund switches held over a year. The ideas are pre-Budget suggestions, not law.

The recommendations were first reported by Reuters on 2 November 2026, citing two sources with direct knowledge of the matter, and carried by Business Standard. SEBI has not published the document, so the details rest on unnamed sources.

What SEBI Reportedly Proposed

There are two parts. The first would remove long-term capital gains (LTCG) tax for foreign portfolio investors (FPIs) in Indian equities. One source told Reuters the aim is to reduce the upfront tax burden on foreign investors.

The second is aimed at domestic savers. SEBI has reportedly recommended that switching from one mutual fund scheme to another should not be treated as a taxable sale if the units have been held for more than a year. Today, a switch is generally treated as a redemption followed by a fresh purchase, which can trigger capital gains tax, as Outlook Money explains.

The recommendations come months before the Union Budget in February. They are not binding, and the final decision rests with the government.

Why This Is a Material Update

Vantage reported on 26 October that the government was discussing a possible LTCG cut and dollar-based gain calculations for FPIs, based on an Indian Express report. The new development is a recommendation from the market regulator itself, with a fresh proposal for domestic fund investors -> Budget 2027: LTCG Tax Cut Under Government Discussion.

The Context Behind the Push

Foreign investors have sold a record $31 billion of Indian stocks this year, according to the Reuters report. The Nifty 50 has declined 4.8% over two years while the MSCI emerging markets index rose 40%.

We tracked the latest month of that selling in this report on October flows -> Foreign Investors Sell Indian Equities in October.

Current rates still apply: 12.5% LTCG on securities held for more than a year and 20% short-term capital gains tax, plus securities transaction tax on trades.

What to Check

• Holding period on each fund lot: your consolidated account statement shows purchase dates; the proposed relief reportedly covers only units held for more than a year.
• Your realised gains this financial year: today's 12.5% LTCG rate applies above the ₹1.25 lakh annual exemption, as covered in our 26 October report, so check the capital gains statement from your registrar before any switch.
• The Union Budget in February: only the Finance Bill can change these rules, so wait for the published text rather than acting on the recommendation.

Sources

Click an article title to view the source.

• Sebi backs removal of long-term capital gains tax for foreign investors published on 2 November 2026 in Business Standard (Reuters)
• Sebi Proposes Scrapping LTCG Tax For Foreign Investors, Seeks Mutual Fund Tax Relief published on 2 November 2026 in Outlook Money
• Budget 2027: LTCG Tax Cut Under Government Discussion published on 26 October 2026 in Vantage Radar
• Foreign Investors Sell Indian Equities in October published on 1 November 2026 in Vantage Radar

Are you holding off a fund switch until the Budget, or does this proposal change nothing in your plan? Tell us why in the attached forum discussion.