UAE-based NRI investors weigh options amid plans for changes in Indian stock market taxes

NRI investors residing in the United Arab Emirates (UAE) who hold Indian shares are currently facing uncertainty. Finance Minister Nirmala Sitharaman has stated that she will consider the concerns of investors regarding stock market levies, leading investors to now evaluate their investment options. However, no clear signal has been given regarding which taxes will be amended or whether existing shareholders will receive any relief.

According to a Bloomberg report, during an event, Sitharaman acknowledged that there is anxiety among retail investors due to the prolonged decline in the market. She stated, “I fully appreciate the concerns raised and I will take all this into account.” This statement follows a surge in October, after the Finance Minister expressed readiness to hear views on market taxes.

The Finance Minister noted that pressure has increased due to weak equity markets and withdrawals by foreign investors, although foreign investors have recently begun to return. According to the Bloomberg report, Indian shares are among the worst-performing in Asia this year and have lagged behind other emerging market countries by the largest margin in three decades. High oil prices and an increase in global bond yields have heightened concerns over expensive shares and weak earnings growth.

Sitharaman noted that India had attracted strong foreign inflows under a similar tax structure in 2023 and 2024. In July 2024, India increased equity tax rates, raising the rate for qualifying long-term gains from 10% to 12.5% and the short-term rate from 15% to 20%. She said, “The situation is very different now. Circumstances have changed, challenges have increased, and there have been more FII outflows.” She added that India needs capital to sustain economic growth of over 7%, and after focusing on the development of the bond market, demands for more support for equity are now being heard.

The impact on UAE-based investors will depend on which levy is amended. The Securities Transaction Tax (STT) applies to the value of the trade; therefore, a reduction in it could lower selling costs even for investors whose share values have declined. Conversely, a reduction in Long-Term Capital Gains (LTCG) tax will only affect those selling with a profit. Under current rules, a base rate tax of 12.5% applies to annual profits exceeding ₹1,25,000 on listed shares held for more than 12 months.

On the other hand, SBI Research has proposed the abolition of tax on long-term equity gains and increasing the holding period to two or three years. However, Sitharaman has not endorsed this recommendation. India typically presents the Federal Budget in early February. For NRI investors, it will now be crucial to see whether new rules will apply to future sales and whether shares must be held for a longer period to obtain relief. Currently, no timeline has been fixed and old rates remain applicable.