At a meeting with Securities & Exchange Board of India (Sebi) and officials of Department of Economic Affairs here on Wednesday, the high-frequency trading firms said that Reserve Bank of India's stern regulations on leverage would force them to shift exposures from entities here to FPIs.
"The DEA officials didn't say anything but were willing to listen - probably after the increase in inflows following tax cuts on G-Secs, though the delay in inclusion of G-secs in Bloomberg index may disappointment many," said another person.
India scrapped taxes on G-Secs for FPIs through a June ordinance with effect from April 1, 2026. With this, interest withholding tax, along with short-term and long-term capital gains taxes were removed.
"It's widely felt that rationalisation of STT along with other charges and levies would make transaction charge more competitive. There's also demand to reduce capital gains tax which has risen over the years, but I don't know to what extent the government is open to this," said an industry official who attended the meeting.
STT, applying on stocks, derivatives, and equity-oriented mutual funds, is collected by exchanges directly at the time of transaction. Introduced in 2004 as a small turnover tax after abolishing the long-term capital gains tax, STT continued even after long-term capital gains tax was brought back and tax on equity profits was raised. STT on equity derivatives was hiked in 2026 but it may not have led to a fall in retail losses in F&O.
"Through there was no one from CBDT (Central Board of Direct Taxes), the new uncertainty post Tiger Global was mentioned," said a source. The Supreme Court verdict on the US investment firm has unsettled foreign investors, changing the way they interpret treaties and indirect transfers.
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