Edelweiss Chief Calls For Ending Foreign Equity Tax

Market Proposal

India must remove the capital gains tax on foreign investors to revive the local stock market and boost financial inflows, according to Edelweiss Financial Services Ltd. Chairman and Managing Director Rashesh Shah. Speaking in Mumbai on Friday during an interview with Bloomberg Television anchors Menaka Doshi and Haslinda Amin, Shah stated that India needs to show global investors they are welcome and make the country a good permanent allocation.

Tax Rules And Outflows

Shah joins many others asking the government to free foreign portfolio investors from long-term capital gains tax on listed equities. Finance Minister Nirmala Sitharaman stated earlier in the week that she will look at tax changes on stocks, though she did not confirm any specific revisions to capital gains or transaction taxes. Under current rules, long-term gains on listed equities held for over a year face a 12.5 percent tax, while short-term gains are taxed at 20 percent. Foreign investors have sold Indian shares heavily this year, with net outflows passing $28 billion. However, a recent drop in oil prices and a selloff in global artificial-intelligence stocks brought some funds back, with overseas investors putting more than $5 billion into Indian equities over three weeks and helping push the domestic market up by nearly 10 percent.

Domestic Capital And IPOs

Shah noted that oil prices and global risk events remain major risks for Indian stocks, but strong domestic money helps cushion the market. He estimates that Indian mutual funds can bring $40 billion to $50 billion into equities each year, while insurance companies and pension funds can add $20 billion to $25 billion, bringing total domestic equity inflows to roughly $60 billion to $80 billion annually. This steady local capital lets companies raise more money through initial public offerings. The Edelweiss group plans an IPO for its asset management unit in 18 to 24 months. Edelweiss Mutual Fund holds 1.8 trillion rupees in assets and counts US private equity firm WestBridge Capital as a key investor, while group firm EAAA India Alternatives started trading this week after an IPO that raised 12 billion rupees.

Context

Capital gains taxes apply to profits made from selling assets like stocks, and governments often adjust these rates to encourage or cool down investment activity in local markets. Foreign portfolio investments help support currency values and market liquidity, making tax exemptions a common subject of debate among policymakers and market leaders.