India is reviewing its capital market taxation framework and financial regulations, with possible changes to securities transaction tax, long term capital gains tax, overseas investor access and NBFC lending practices.
The government is examining ways to improve investor sentiment and make Indian financial markets more attractive to domestic and foreign participants. Meanwhile, SEBI has eased certain KYC requirements for overseas individuals, while the RBI’s proposed restrictions on revolving credit are prompting NBFCs to redesign their lending products.
STT Abolition and LTCG Tax Relief Under Review
The government is considering several options, including abolishing Securities Transaction Tax, introducing a tiered long term capital gains tax structure and offering tax concessions on corporate bond interest income.
One proposal involves reducing LTCG tax rates for longer holding periods and potentially exempting equity investments held for three to five years. However, no final decision has been announced.
Equity investments held for more than 12 months currently attract a 12.5% LTCG tax. STT collections reached ₹46,840 crore up to October 14 in the current financial year, an increase of 51.6% from a year earlier. Collections for FY27 are projected at ₹73,700 crore.
FICCI has urged the government to restore the LTCG tax exemption on listed securities in Budget 2027-28. It has suggested increasing STT on delivery based trades, if necessary, to compensate for the revenue loss.
SBI Research estimates that removing LTCG tax could cost the government approximately ₹50,000 crore.
SEBI Eases Overseas KYC as NBFCs Redesign Loans
SEBI has relaxed KYC requirements for eligible overseas individual investors, allowing them to complete digital account opening without travelling to India. The revised rules take effect from December 3. Foreign nationals investing through the FPI route will continue to follow the existing framework.
Separately, the RBI’s August 6 draft guidelines propose restricting most NBFCs to term loans, excluding authorised credit card issuers. Under the proposal, borrowers would not be able to redraw repaid amounts from a revolving credit facility.
Bajaj Finance began rolling out new term loan variants on November 1, while Tata Capital is testing modified flexi loan products. Bajaj Finance has warned that the proposed changes could temporarily affect assets under management growth and margins.
The final impact will depend on the rules adopted after the consultation process.
Is the government planning to abolish STT?
STT abolition is one of the options being examined as part of the capital market taxation review. No final decision has been announced.
Could LTCG tax be removed on shares?
The government is considering different forms of LTCG relief, including a tiered structure and possible exemptions for longer holding periods.
What has FICCI proposed for Budget 2027?
FICCI has requested restoration of the LTCG exemption on listed securities and suggested higher STT on delivery based trades as a possible revenue replacement.
What are SEBI’s new overseas KYC rules?
Eligible overseas individuals will be able to complete digital account opening without travelling to India from December 3.
What is RBI proposing for NBFC loans?
The draft proposes restricting most NBFCs to term loans and limiting the ability to redraw amounts already repaid.
