Non-Resident Indians (NRIs) living in the United Arab Emirates are reassessing their Indian investment strategies as the government considers possible changes to taxes on stock market investments. The discussion has gained momentum following Finance Minister Nirmala Sitharaman's remarks that the government is willing to consider investors' concerns about existing market levies.
The developments could influence how UAE-based Indian investors manage their equity portfolios, particularly those holding listed shares and mutual funds. However, no tax reduction has been officially announced, and existing tax rules remain in force.
Government Considers Investor Concerns
Sitharaman has acknowledged concerns raised by investors about India's capital gains tax and securities transaction tax (STT). Her comments come amid a challenging period for Indian equities, which have experienced sustained foreign investor outflows and weaker performance compared with several emerging markets.
The discussion is taking place ahead of the Union Budget scheduled for February 2027. The government is considering ways to make Indian markets more attractive to investors while supporting the country's long-term economic growth.
The Securities and Exchange Board of India (SEBI) has reportedly recommended removing long-term capital gains tax for foreign equity investors as part of its pre-budget suggestions. However, these recommendations are non-binding, and the final decision rests with the government.
Understanding the Proposed Tax Changes
Under the current rules, qualifying long-term capital gains on listed equity shares held for more than 12 months are taxed at 12.5% on eligible annual gains exceeding ₹1.25 lakh. Short-term gains on qualifying listed equity transactions are generally taxed at 20%.
Investors also pay STT on certain share market transactions, meaning they may face both transaction-related charges and capital gains tax when selling investments.
The distinction is important for NRIs. STT applies to the transaction value, whereas capital gains tax applies to the taxable profit generated from selling an investment.
A reduction in long-term capital gains tax could improve returns for investors selling profitable holdings. A reduction in STT, meanwhile, could lower transaction costs regardless of whether the investment generates a profit.
Why UAE-Based NRIs Are Watching Closely
The UAE is home to a large Indian expatriate community, many of whom maintain financial investments in India while earning and living overseas.
Indian equities and mutual funds remain important investment options for NRIs seeking exposure to India's long-term economic growth. However, taxation, currency movements, investment regulations and documentation requirements can influence their final returns.
For UAE residents, the India-UAE Double Taxation Avoidance Agreement may also be relevant, depending on their tax residency status, income type and eligibility conditions.
Any proposed changes could therefore affect investment decisions, particularly for individuals planning to sell existing holdings, reinvest profits or increase their exposure to Indian markets.
Existing Investments and Tax Rules Remain Important
Investors should not assume that possible tax relief will automatically apply to shares they already own. The government would need to clarify whether any changes cover existing holdings, future purchases or investments sold after a specified date.
The holding period could also become an important consideration. Some proposals have suggested extending the qualifying period for long-term gains to two or three years in exchange for removing the tax.
For NRIs investing through mutual funds, withholding tax and documentation requirements will remain important considerations when redeeming units.
February 2027 Budget Could Provide Clarity
The upcoming Union Budget is expected to provide a clearer indication of the government's approach to equity taxation and foreign investment.
For now, the possibility of tax relief has created renewed interest among UAE-based NRIs, but investors must continue to follow the existing regulations until any changes are formally approved.
The final decision could influence India's attractiveness as an investment destination for overseas Indians, particularly at a time when policymakers are looking to encourage foreign capital and strengthen domestic financial markets.
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