Taxed in rupees, measured in dollars.
India taxes foreign investors on rupee gains. They count returns in dollars. That gap is costing the market.
The argument.
India raised capital-gains tax on listed shares in July 2024, to 20% for short-term gains and 12.5% for long-term gains, and foreign portfolio investors pay the same rates. The article argues this makes India less competitive than markets that generally do not tax foreign investors' listed-share gains.
At the same time the rupee has weakened. Because tax is charged on gains measured in rupees, an investor can lose money in dollar terms and still owe Indian tax.
Domestic investors have partly offset foreign selling, but domestic money cannot fully replace what foreign capital brings: global price discovery, a lower cost of capital and support for the currency.
The article proposes aligning foreign-investor capital-gains tax with competing markets, not taxing currency losses as gains, and keeping tax and currency policy predictable.
Read the full article on The Long View.