India’s debate over stock-market taxes has gained urgency as investors weigh weak returns against the cost of trading. On September 24, finance educator Pushpendra Singh proposed abolishing the Securities Transaction Tax (STT), removing the long-term capital gains tax on equities and cutting the short-term rate.
A day later, reports on India’s investment-treaty review raised a separate question: would lower taxes be enough to attract foreign capital if companies still face lengthy disputes with the government?
What would Singh’s proposed tax cuts change?
Singh’s proposals would reduce the costs investors face when they trade shares or realise gains. Equity delivery trades currently attract STT on both the purchase and sale. Qualifying short-term gains face a 20% tax, while qualifying long-term gains above the annual ₹1.25 lakh exemption face a 12.5% tax.
Lower costs could encourage existing investors to trade more often. They could also improve returns after tax for new investors. Neither outcome would guarantee fresh capital: investors would still assess company earnings, share prices and the rupee before committing funds.
The government has given no indication that it will adopt Singh’s proposals. In July, the finance ministry told parliament that it had no proposal to scrap the long-term capital gains tax on equities for domestic investors.
Why does Agrawal expect Indian stocks to recover?
Raamdeo Agrawal, chair and co-founder of Motilal Oswal, has offered an earnings-based case for Indian equities. In a Financial Times interview, he said the market could double in five to six years if corporate earnings keep growing and valuations hold. That remains a forecast, dependent on future results.
Agrawal pointed to stronger domestic participation as one source of support after foreign investors sold Indian shares. He also cited signs of a recovery in corporate earnings. Sustained profit growth could draw investors back, but the forecast does not depend on Singh’s proposed tax changes taking effect.
What does the investment-treaty review mean for foreign investors?
India may keep a rule requiring foreign companies to pursue disputes through local remedies before seeking international arbitration, Reuters reported on September 25, citing government sources. One source said India would retain that requirement; another said it might shorten the current five-year wait to two years. The cabinet has yet to decide.
The reported decision concerns investment treaties, which matter particularly to foreign companies making longer-term investments. It does not directly change the taxes Singh wants cut for stock investors. Still, both issues enter foreign investors’ assessments of India: one affects returns, while the other concerns how companies resolve disputes with the government.
A government source also told Reuters that India intends to keep tax disputes outside its investment treaties. That position makes Singh’s call for lower market taxes a separate policy debate, rather than part of the treaty review.
Would more stock trading support the rupee or crypto?
If tax cuts attracted foreign purchases of Indian shares, investors would generally need rupees to complete those purchases. Such inflows could support the currency, although subsequent sales or hedging could reverse the flow. The size and direction of any effect would depend on actual investment, alongside oil prices, U.S. interest rates and demand for dollars.
A link to crypto is less direct. Investors might allocate some funds to digital assets if their overall appetite for risk rises, but equity-tax cuts would leave India’s crypto tax rules in place.
The country’s tax authority sets out a 30% tax on taxable virtual digital asset income and a 1% tax deduction on qualifying transfers. No measure announced so far establishes that cheaper stock trading would bring new liquidity to crypto.
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