SBI Research has proposed a restructuring of the Long-Term Capital Gains tax, including a possible tiered system or exemption, to counter the ₹3 lakh crore foreign investor exodus in 2026. While the plan aims to improve liquidity, it is currently a research proposal and not an official government policy. Investors are waiting for the upcoming budget to see if the finance ministry adopts any of these suggestions.
State Bank of India (SBI) researchers have put forward a roadmap to adjust the Long-Term Capital Gains (LTCG) tax framework, aiming to bring stability to the Indian equity markets. This proposal follows a year of significant pressure on the markets, with foreign institutional investors withdrawing over ₹3 lakh crore from Indian stocks throughout 2026. The research report highlights that current tax structures may be discouraging long-term investment, and suggests that changing these rules could help retain domestic and foreign capital.
The proposed changes include a few different paths. One suggestion is to shift to a tiered system where tax on gains drops to zero for assets held for more than three years, rewarding those who invest for the long term. Another idea is to index the current tax exemption limit—which is currently ₹1.25 lakh—to inflation, ensuring the relief remains meaningful over time. To ensure the government does not lose too much tax revenue, the report suggests a recalibration of the Securities Transaction Tax (STT), proposing that a 50% increase in STT could potentially balance out the revenue lost from removing or lowering the LTCG tax.
SBI researchers estimate that removing the LTCG tax could create a revenue hole of ₹40,000 crore to ₹50,000 crore for the 2028 financial year. They argue that this amount, which is a small fraction of India’s total GDP, is a cost worth paying to improve market sentiment and liquidity. Another model proposed is a reinvestment deferral, similar to rules in the real estate sector, which would allow investors to avoid taxes if they reinvest their gains into eligible equity mutual funds within a specific timeframe.
It is important for investors to note that these suggestions are currently just research recommendations. As of November 5, 2026, the government has not made any official changes to the tax policy. The Finance Minister has acknowledged feedback from investors regarding taxation but has not committed to any specific rollback or restructuring before the next budget cycle.
While tax changes could influence market sentiment, analysts often point out that large-scale foreign outflows are frequently driven by global macro factors. Elements such as the strength of the US dollar, fluctuations in global crude oil prices, and changes in US interest rates often have a larger impact on foreign investment flows than domestic tax policy alone. Even if tax rules were to change, the movement of global capital will continue to depend on these broader economic conditions. Investors should monitor the upcoming government budget and official statements from the Finance Ministry for any concrete policy decisions rather than treating this research proposal as a confirmed change.