Foreigners to pay LTCG on par with local investors at 12.5 percent, up from 10 percent

Tax on long-term capital gains (LTCG) for listed bonds, debentures and listed preference shares raised to 12.5 per cent from 10 per cent under the provisions of Section 112A provides for LTCG tax on the sale of listed equity shares, equity-oriented mutual funds and business trust.

“It was seen that while the rates of taxation in the case of specified funds or FIIs in case of long-term gains referred to in section 112A have been brought to parity width the rates applicable for residents, the rate of income-tax calculated on the income by way of long term capital gains not referred to in section 112A was retained at 10 per cent vide Finance Act, 2024,” says the budget document.

Section 112A provides for LTCG tax on the sale of listed equity shares, equity-oriented mutual funds and business trust. The tax rate on these listed securities was raised to 12.5 per cent from July 2024 for gains exceeding Rs 1.25 lakh.

According to Sunil Gidwani, a partner at tax consultancy Nangia Andersen, last year when the LTCG tax rates were changed for residents, the tax rates for FPIs on shares, equity mutual funds and business trusts were also changed to 12.5 per cent but LTCG on other assets such as G-secs, bonds and NCDs were left out for them, perhaps inadvertently, and continued to be taxed at 10 per cent.

“This is sought to be corrected,” he added.