Long-term capital gains tax on all FII income hiked to 12.5 pc

“It is proposed to amend the provisions of section 115AD to provide that income-tax on the income by way of long-term capital gains on transfer of securities (other than units referred to in section 115AB) not referred to in section 112A, if any, included in the total income, shall be calculated at the rate of 12.5 per cent,” the Bill said.

“These amendments will take effect from the April 1, 2026, and shall accordingly, apply in relation to the assessment year 2026-27 and subsequent assessment years,” it said.

Section 112A provides for LTCG tax on the sale of listed equity shares, equity-oriented mutual funds and business trust. Under Section 115AD of the Income-tax Act, FIIs and specified funds are taxed at 10% on long-term capital gains from the transfer of securities (excluding certain units covered under Section 115AB).

The year 2024 witnessed a sharp slowdown in FII activity, with foreign investors pumping in just over Rs 1,600 crore on a net basis into the domestic equity market compared to robust inflows of Rs 1.71 lakh crore in the previous year, a steep fall of 99 per cent. FIIs started 2024 by buying Indian equities, purchasing Rs 1.12 lakh crore of domestic shares in the first nine months of the year.

FIIs sold stocks worth over Rs 2.63 lakh crore since October 2024 in the wake of the economic slowdown and lower corporate earnings.

Section 112A was inserted by the Finance Act 2018 to tax long-term capital gains from the sale of listed equity shares, units of equity-oriented mutual funds and units of business trust.