ASSOCHAM Pushes for Tax Simplification to Lure Long-Term Global Capital
Industry body ASSOCHAM calls for tax rationalisation and incentives for long-term holdings to attract stable foreign capital and boost investor confidence.
Industry body ASSOCHAM has urged the Indian government to implement further tax rationalisation and simplify tax regulations to attract stable, long-term foreign investments. This call comes as the organization welcomes recent strategic moves by the Reserve Bank of India (RBI) and the Finance Ministry aimed at bolstering investor confidence despite ongoing volatility in foreign portfolio investment (FPI) flows and the rupee.
Stability Amidst Global Uncertainty
Nirmal K Minda, President of ASSOCHAM, highlighted that the coordinated efforts between the central bank and the government are crucial for maintaining macroeconomic stability. He noted that by addressing currency volatility and creating a more predictable investment environment, the authorities are moving in the right direction to shield the economy from global uncertainties.
A significant point of praise from the industry body is the Income-tax Amendment Ordinance, 2026. This ordinance provides a tax exemption on interest and capital gains for FPI investments in government securities, effective from April 1, 2026. According to ASSOCHAM Secretary General Saurabh Sanyal, this forward-looking decision is expected to attract substantial, long-term capital from insurance companies, sovereign wealth funds, and pension funds.
Consultative Approach to Budgeting
ASSOCHAM also expressed its appreciation for Finance Minister Nirmala Sitharaman's openness to dialogue. During the Bloomberg New Economy Forum on October 13, the Finance Minister indicated that the government is eager to hear investor perspectives on the securities transaction tax (STT) and long-term capital gains (LTCG) tax as part of the consultations for the Union Budget 2027-28.
The industry body believes that this consultative strategy will reassure global investors and help India build a more competitive tax regime on the international stage.
RBI's Role in Rupee Recovery
The organization pointed to several RBI interventions that have helped the rupee recover nearly 2 per cent from its recent lows. These measures include:
- The establishment of a special dollar window for public sector oil marketing companies.
- The implementation of the Foreign Exchange Risk Reserve.
- Tighter norms for foreign exchange derivatives.
- Strategic open market operations.
- A higher cash reserve ratio requirement.
Adding to the positive outlook, ASSOCHAM cited India's robust foreign exchange reserves and the RBI's GDP growth projection of 7.1 per cent for FY27 as clear indicators of the nation's economic resilience.
Proposed Reforms for Equity Holdings
Despite the progress, ASSOCHAM Chief Economist S P Sharma emphasized the need for a standardized interpretation of tax provisions and further rationalization. He specifically brought attention to a proposal by SBI Research, which suggests:
- Extending the definition of long-term equity holdings to a period of two to three years.
- Introducing specific incentives for investors who maintain these longer-term holdings.
Navigating Global Headwinds
The industry body acknowledged that FPI flow volatility has been driven by several external factors, including:
- Elevated crude oil prices.
- High bond yields in the United States.
- A global shift of capital toward technology and artificial intelligence themes.
To counter these challenges, ASSOCHAM has committed to collaborating with the Securities and Exchange Board of India (SEBI), the RBI, and the government to solidify India's standing as a premier destination for long-term global capital.