The government has removed the discrepancy in the tax system. After this, foreign portfolio investors (FPIs) will not get the benefit of taxes on listed bonds, debts, date mutual funds and listed preference shares. It has been clarified in the general budget that FPI will have to pay long -term capital benefits (LTCG) at the rate of 12.5 per cent on such investment securities which has so far been 10 per cent.
Experts estimate that some investment withdrawal may occur before the increased tax rate is effective. This amendment will be effective from 1 April 2026 and will apply in the tax assessment year 2026-27 and in the next years. This is clarified in the Finance Bill 2025.
Grant Thornton in India partner Vivek Iyer said that FPI investment is usually known as hot money and is more sensitive to tax rates such as variables. Changes in tax rates of debt securities can greatly affect the returns of tax-water, which is an important factor in investment decisions.
He said that the allocation in over tax payments is likely to decrease. However, overall investment in India cannot change as investors can re -allocate funds in other asset classes instead of reducing their overall investment in the country.
Experts said that the government has abolished the gap for FPI in the last budget. Earlier, long -term capital gains on assets such as government securities and other loans securities were 10 per cent while it was increased to 12.5 per cent for equity mutual funds. This discrepancy has now been overcome. Another tax advisor suggested that the previous difference was probably an omission that has now been fixed.
A note by Nishith Desai Associates states that tax rates for FPI are specified in Section 115 AD, not in Section 112. Finance (No. 2) Act, 2024 has amended Section 115 AD (as well as applied surcharge and cess) for imposing 12.5 per cent tax on long -term capital gains arising from transfer of equity shares listed. However, all other assets were taxed on LTCG 10 per cent tax. This discrepancy is now being corrected through the bill. The LTCG received to FPI will be taxed at the rate of 12.5 per cent.
According to NSDL data, net FPI investment in loans in Indian markets in 2024 was Rs 1.1 lakh crore while investment in debt mutual funds was Rs 507 crore. The net investment in the loan through the Voluntary Retention Route (VRR) was Rs 13,000 crore and was about Rs 29,000 crore by the way of FAR.