India mulls tax exemption for sovereign wealth funds’ equity gains amid heavy foreign outflows

Mumbai, Jan 5, 2026

Synopsis
India may exempt Sovereign Wealth Funds and patient capital from taxes on Indian stock market earnings. This proposal aims to attract stable foreign investment following significant sell-offs by foreign fund managers. The government is examining extending these benefits to other long-term investors like pension funds. Such a move could boost capital inflows into the Indian equity market.

Amid a large stock sell-off by foreign fund managers in 2025, New Delhi has received a proposal to exempt Sovereign Wealth Funds (SWFs) and certain pools of offshore patient capital from tax on their earnings from the Indian equity market.

The idea was mooted at a recent meeting held by the government with senior professionals and industry representatives.

So far, tax exemptions for SWFs and pension funds have largely been confined to income from investments in Indian infrastructure entities. This tax relief on dividend income and long-term capital gains, subject to a minimum holding period of three years, was introduced to attract stable capital for infrastructure development.

Idea proposed at government meeting with industry representatives amid ₹1.58 lakh cr net FPI outflows in 2025

"What is now being suggested is to extend the tax benefit to market investments in listed securities by categories of entities such as SWFs, which typically commit long-term capital and are not taxed in their home jurisdictions," a person familiar with the deliberations told ET.

Sovereign funds are generally not taxed in their home countries as they are considered arms of their respective governments, with earnings credited to the government's account rather than accruing to any private individual.

[The Economic Times]