UAE NRIs weigh investment options as India plans stock tax changes

Dubai: UAE-based NRIs who own Indian shares face uncertainty over how much tax they will pay when they sell after Finance Minister Nirmala Sitharaman said she would consider investors’ concerns about stock market levies. She gave no indication of which tax the government might change or whether any relief would cover shares investors already hold.

Speaking at an event this week, Sitharaman acknowledged anxiety among retail investors as a prolonged selloff intensified calls for a review. “I quite appreciate” the concerns being raised and “I’ll consider all this,” she said, according to Bloomberg.

The remarks follow an October rally after Sitharaman said she was willing to hear views on market taxes. Her latest comments pointed to the pressures behind those calls: weaker equity markets and foreign investor withdrawals. She said foreign investors had recently started returning.

Selloff puts taxes back in focus

Indian shares are among Asia’s worst performers this year and have lagged emerging-market peers by the widest margin in more than three decades, Bloomberg reported. High oil prices and rising global bond yields have added to concerns about expensive shares and weak earnings growth.

Sitharaman noted that India attracted strong foreign inflows in 2023 and 2024 under a broadly similar tax framework. India did raise equity tax rates in July 2024, increasing the rate on qualifying long-term gains from 10% to 12.5% and the short-term rate from 15% to 20%.

“The situation is very different now,” Sitharaman said. “Circumstances have changed, challenges have grown, more FII outflows have happened.” She said India needed capital to sustain economic growth of more than 7% and was hearing calls for greater support for equities after focusing on developing its bond market.

Existing NRI holdings in focus

The effect on UAE-based investors would depend on which levy changes. Securities transaction tax applies to the value of a trade, so a reduction could lower the cost of selling even for investors whose shares have lost value during the downturn. A cut to long-term capital gains tax would affect those selling at a taxable profit.

Under current rules, India taxes qualifying gains on listed shares held for more than 12 months at a base rate of 12.5% on eligible annual gains above Rs125,000. The threshold matters because investors below it would see no direct saving from a cut to that rate alone.

SBI Research has separately proposed abolishing the tax on long-term equity gains while extending the holding requirement to two or three years. Under that proposal, shares held long enough to count as long-term today might still fall short of the period needed for relief. Sitharaman did not endorse the recommendation.

India typically presents its federal budget in early February. For NRIs who already own shares, the details to watch are whether any new rules apply to future sales of those holdings and whether investors would have to hold them longer to qualify. Sitharaman gave no timetable for a decision, and the current rates still apply.