Foreign portfolio investors and Indian units of overseas trading houses are lobbying India’s markets regulator for lower securities transaction taxes, citing increased costs and potential double taxation as the Reserve Bank of India implements tighter funding rules.
Foreign portfolio investors and Indian units of overseas trading houses are pressing India’s markets regulator and senior officials to ease the securities transaction tax, arguing that the levy adds to capital gains taxes and leaves investors facing a heavier burden than many of their global peers. The issue was raised at a meeting in Mumbai on Wednesday with Securities and Exchange Board of India and Department of Economic Affairs officials, according to ET Bureau. Reuters-style reporting in related coverage said the discussions reflected growing concern over the cumulative cost of trading in India. The Times of India also reported that some foreign investors say the current framework can amount to double taxation.
The appeal comes as India has already moved to lighten the tax load on foreign investors in one corner of the market. Officials recently removed taxes on government securities for foreign portfolio investors, effective from April 1, 2026, after a June ordinance. Industry participants at the meeting said that step had improved sentiment, even though some were disappointed by the slower-than-expected inclusion of government bonds in major indices, according to ET Bureau.
At the same time, market participants are adjusting to tighter financing rules from the Reserve Bank of India. According to Mint and Business Standard, the central bank has barred banks from funding brokers for proprietary trading and required 100% collateral for credit to brokers, a move aimed at curbing speculation. One person familiar with the talks told ET that the leverage squeeze could push some activity offshore or into foreign portfolio investor structures, where trading conditions can be more flexible. That, participants argued, would reduce liquidity in domestic markets rather than improve it.
The lobbying effort is also part of a broader push from India’s capital markets for lower transaction costs. In pre-Budget meetings this year, exchanges and industry bodies urged the government to trim STT on cash and derivatives trades, saying the tax raises costs and can discourage market-making. STT was introduced in 2004 and has remained a fixture even as India repeatedly changed how it taxes equity profits. Some market participants now want a wider review of levies, including capital gains tax, though officials have given no public indication that such a change is imminent.
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