India’s stock market isn’t just facing a downturn, it’s being suffocated by its own taxation policies, according to angel investor Naman Shrivastava.
While many point fingers at global factors, Shrivastava, in a post on LinkedIn, argues that the real damage is coming from within.
Until 2018, India had zero Long-Term Capital Gains (LTCG) tax on equities held for over a year, creating an environment where investors thrived, and the market flourished. That changed when the government reintroduced LTCG at 10% on gains above ₹1 lakh—only to raise it again to 12.5%. Add a surcharge and cess, and suddenly, long-term investing wasn’t as attractive, he writes.
Countries such as Singapore, UAE, Hong Kong, and the Netherlands still have 0% LTCG on equities, making them a haven for global investors. The contrast is stark. “If I change my tax residency to UAE and use it as a base to invest in US markets, I may not pay any tax on equities,” Shrivastava points out.
The tax squeeze doesn’t stop at LTCG. Until 2020, Dividend Distribution Tax (DDT) was 15% at the company level, making it manageable. Now, dividends are taxed in the hands of investors, with top earners facing rates as high as 42%.
That’s not all—India also imposes a direct trading tax on every buy-sell order, something that no other major economy does while also taxing capital gains, his post says. Foreign institutional investors (FIIs) are offloading Indian equities at a relentless pace, disregarding sectoral outlooks. February alone saw ₹34,576 crore in FII outflows, with financials bearing the brunt—₹6,991 crore dumped, adding to ₹24,949 crore in January. Capital goods (₹4,464 crore) and FMCG (₹6,904 crore) were hit hard, despite a consumption-friendly Budget. Auto (₹3,969 crore), construction materials (₹3,844 crore), and oil & gas (₹3,377 crore) also saw heavy exits. Even power, once an investor favorite, faced ₹3,086 crore in sell-offs, per NSDL data. Barring selective buying in IT, chemicals, textiles, and telecom (buoyed by Airtel’s stake sale), FIIs remained net sellers across the board.
Amid this sell-off, experts argue that reducing capital gains tax could increase post-tax returns and make India more attractive to foreign investors. “Undoubtedly, lowering capital gains tax will increase post-tax returns for investors,” said Nilesh Shah, MD, Kotak Mahindra AMC. However, he cautioned that tax cuts alone wouldn’t be enough, suggesting additional incentives like preferential IPO quotas, tax exemptions, and guaranteed returns on FPI investments. Echoing this sentiment, Samir Arora, founder of Helios Capital, argued at the Business Standard Manthan Summit 2025 that scrapping capital gains tax for foreign investors could deepen Indian capital markets. He noted that 199 out of 200 countries do not tax foreign investors in stock markets, making India an outlier. Additionally, Arora highlighted how FIIs also lose money on currency fluctuations, as taxes paid in rupees are later converted into dollars for repatriation.
For Shrivastava, the bigger question isn’t just about taxation—it’s about what India delivers in return for these taxes.
“If taxes were high but services were great, people wouldn’t complain. But where is this money going?”
Public healthcare remains underfunded, despite GST on medicines and health insurance. Education, he adds, is taxed heavily, yet quality is declining. "Roads are still filled with potholes despite high road taxes. Stop blindly defending political parties. Start demanding better policies. Start questioning your representatives," he writes.