FM Sitharaman open to hearing stock market tax debate on LTCG and STT

Finance Minister Nirmala Sitharaman has said she is keenly listening to the ongoing debate among domestic and foreign investors over stock market taxation, including the long-term capital gains (LTCG) tax and the securities transaction tax (STT).

Speaking at the Bloomberg New Economy Forum, Sitharaman described the discussions around market taxes and the uniform treatment of asset classes as a healthy exchange. While declining to discuss specific measures ahead of the Union Budget presentation in February, her receptive tone underlined the administration's consultative approach to fiscal policy and market stability.

"We are very close to the budget. It may not be the best time for me to say what I will or will not consider," Sitharaman said. She acknowledged investor representations pointing out that levying both STT on transactions and capital gains tax on realised profits runs in parallel, with some market participants arguing that only one should apply.

Her comments offered an immediate boost to Dalal Street, where benchmark indices rallied late in the afternoon as investors welcomed the finance ministry's engagement with market sentiment.

What investors and research houses are proposing

The taxation debate has gathered momentum amid calls to anchor long-term institutional capital. In a recent Ecowrap report, SBI Research argued that relying solely on central bank interventions to manage foreign exchange movements is insufficient, recommending that the government consider abolishing LTCG for equity while extending the required holding period to two to three years.

Market analysts have also pointed out that predictable post-tax yields play a central role in keeping Indian equities competitive against other emerging markets. In the July 2024 budget, the government raised LTCG from 10% to 12.5%, alongside an increase in the tax-free exemption threshold to ₹1.25 lakh, while short-term capital gains (STCG) on specified assets moved to 20%.

Economic stability and rupee resilience

Addressing wider macro trends, Sitharaman emphasised that India's underlying economic fundamentals remain robust and resilient against global external headwinds. Sizable foreign exchange reserves and sustained domestic liquidity continue to buffer the financial system against volatile global dollar movements.

She noted that the Reserve Bank of India’s measures are designed to curb speculative volatility rather than to peg the rupee to an artificial level. Recent steps by the central bank include tightening foreign exchange derivative rules and setting up a dedicated window for oil marketing companies to shift dollar demand away from the spot market.

Sitharaman also highlighted strong domestic and foreign capital participation across high-growth manufacturing sectors, including semiconductors, chip design, renewable energy, generic pharmaceuticals, and aircraft maintenance, repair, and overhaul (MRO) facilities, reinforcing the nation's steady economic expansion.