The Federation of Indian Chambers of Commerce and Industry (FICCI) has formally urged the Finance Ministry to exempt long-term capital gains (LTCG) tax on listed equities in the Union Budget 2027-28, as part of a wide-ranging pre-budget memorandum. The apex industry body has also called for a stable 10-year capital gains tax framework, revised tax rules for foreign portfolio investors, and the scrapping of certain tax deduction at source (TDS) requirements.

The Dual Levy Argument

FICCI has argued that the reintroduction of LTCG tax in 2018 — without simultaneously withdrawing the securities transaction tax (STT) on listed shares — created a dual levy on equity investors. The chamber has also flagged the increases announced on 23 July 2024, which raised short-term capital gains (STCG) tax to 20 per cent and LTCG tax to 12.5 per cent, with an exemption threshold of ₹1.25 lakh. These changes, FICCI contends, have made India's equity tax structure less competitive globally.

Foreign Investor Outflows and the Currency Gap

FICCI cited foreign portfolio investor (FPI) withdrawals of approximately ₹3.08 lakh crore over the year as evidence that higher capital gains taxation, combined with the absence of any forex adjustment, has eroded returns on Indian equity for overseas investors. The chamber has proposed allowing capital gains for foreign investors to be calculated in the original foreign currency of the investment, so that rupee depreciation is properly accounted for when determining taxable gains. It has also sought protection for commercial transactions from anti-abuse tax provisions, and called for a specified list of investors and transactions exempt from provisions that can tax marginal income, intra-group transfers, and acquisitions.

Proposed Revenue-Neutral Fix

To address potential revenue concerns from restoring the LTCG exemption, FICCI has suggested that the government could appropriately increase STT on delivery-based transactions as an offsetting measure. The industry body has simultaneously sought a formal commitment from the government to maintain the capital gains tax framework for approximately 10 years, arguing that policy predictability is critical for long-term equity market participation — both domestic and foreign.

Merger Rules and TDS Relief

On corporate restructuring, FICCI has urged the Finance Ministry to make the carry-forward and set-off of accumulated business losses and unabsorbed depreciation available across all sectors in the event of mergers, alongside safeguards linked to business continuity and payroll costs. Separately, FICCI wants the government to scrap the 0.1 per cent TDS on qualifying business-to-business purchases of goods and e-commerce transactions where payments are GST-liable and suppliers are GST-registered. The chamber argues these transactions are already tracked through GST and other digital reporting systems, and that TDS in this context creates unnecessary working-capital blockages and reconciliation burdens for businesses.

The pre-budget recommendations come as the government prepares for the full Budget cycle ahead of February 2027. Whether the Finance Ministry accepts any of FICCI's proposals will be closely watched by equity markets, FPIs, and corporate treasuries alike.