FM Sitharaman keeps door open for changes to LTCG tax regime

Finance Minister Nirmala Sitharaman on Tuesday declined to rule out changes to the long-term capital gains (LTCG) tax regime, saying preparations for the next Union Budget have begun and it would be premature to indicate the government’s thinking on the matter. 

Sitharaman has indicated that the government will consider investor views on LTCG tax during Budget consultations, bringing equity taxation back into focus amid continued foreign portfolio investor outflows from Indian markets. She flagged the securities transaction tax (STT) as an issue for consideration, noting that market participants have questioned whether different asset classes should be treated uniformly. The government would keenly listen to their views, she said. 

Speaking at the Bloomberg New Economy Forum in New Delhi, Sitharaman acknowledged that investors, both in India and overseas, have been raising concerns about the existing tax framework.  

RBI focused on curbing rupee volatility, not fixing its value 

On the rupee, Sitharaman said the domestic currency had depreciated “significantly” over the past year and a half, but stressed that the Reserve Bank of India (RBI) was focused on curbing excessive volatility rather than defending a particular exchange-rate level. 

The rupee has weakened to record lows against the US dollar, prompting the central bank to step up measures to contain the currency’s decline. “They are not trying to fix the rupee. They are trying to stop the volatility. And for that, there is a lot of effort from the RBI side. So, these efforts from the RBI... will continue not to...fix the rupee. We would appreciate it if the rupee finds its own (value),” Sitharaman said. 

Over the weekend, the RBI announced a series of measures to ease pressure on the rupee. These included setting up a special window for oil marketing companies to meet their dollar requirements outside the spot market and tightening rules governing foreign exchange derivatives trades to curb speculative positions against the domestic currency. 

The central bank also directed banks to set aside a 20% reserve against dollar purchases exceeding $2 million. Sitharaman said the RBI’s latest measures had supported the rupee, which appreciated by around 1% on Monday. The currency strengthened further to ₹94.96 against the dollar in early trade on Tuesday. 

“I’m sure there are efforts which the RBI would take further to make sure that the rupee doesn’t become too volatile,” she said, adding that India’s economic fundamentals remained sound and its foreign exchange reserves were adequate. 

External pressures driving currency volatility 

The finance minister attributed much of the rupee’s volatility to external challenges, while asserting that the government was working to maintain the strength of domestic macroeconomic fundamentals. 

She said fiscal discipline would remain intact and should not be a source of concern for investors, even as movements in the dollar continued to pose challenges for the rupee. 

“... fiscal discipline is not going to be a matter which should worry investors. But as regards the rupee, and as regards the way it is reacting to the ups and downs with the dollar, yes, that’s where the challenge is, and we will be attending to it,” Sitharaman added.