India: Key tax and regulatory changes relevant for FPIs

At a glance

India: Budget 2026 – Key tax and regulatory changes relevant for FPIs

A closer look

India: Budget 2026 – Key tax and regulatory changes relevant for FPIs

India's Finance Minister presented the Finance Bill (the “Budget”) for FY 2026-27 on 1 February 2026, with proposals effective from 1 April 2026 (unless otherwise stated), coinciding with the effective date for the new Income-tax Act, 2025. The tax proposals presented in the Budget are aimed at achieving consistent and stable taxation, simplification, and reduced compliance burdens.

Key proposals relevant to Foreign Portfolio Investors (FPIs) include:

• No changes to FPI tax rates or the due date for filing income tax returns.
• Gains arising from the buy-back of shares to be taxed as capital gains.
• Increased Securities Transaction Tax on derivatives, effective 1 April 2026, as follows:
  • Futures: 0.05% (from 0.02%)
  • Options premium: 0.15% (from 0.1%)
  • Exercise of options: 0.15% (from 0.125%)
• Elimination of the 18% goods and service tax on brokerage and other intermediary services provided by Indian brokers to FPIs, treating them as exports, reducing transaction costs.
• Rationalisation of the Portfolio Investment Scheme proposing to extended to all individual non-residents, with individual investment cap doubled to 10% and aggregate cap to 24%.
• Tax holiday on income from International Financial Services Centre (“IFSC”, or “GIFT City”) units extended to 20 consecutive years out of the first 25 years, post which a concessional rate of 15% is available.

Please see here for a more detailed summary provided by Deloitte India.

India: Consultation Paper released on netting of funds

On 16 January 2026, the Indian capital market regulator, Securities and Exchange Board of India (“SEBI”) released a consultation paper proposing to permit netting of funds for transactions undertaken by Foreign Portfolio Investors (“FPIs”) in the Indian cash market. The paper was closed for public comments on 6 February 2026.

‘Netting of funds’ refers to using the proceeds of sale transactions in cash market on a particular day to fund the purchase transactions in cash market done by an FPI on the same day, such that the FPI is required to settle only the net funding obligation. Under the current regulatory framework, FPIs are required to transact in securities on a delivery basis and are not permitted to square off their transactions intra-day. Market participants have noted that this model can lead to both operational and funding challenges.

Whilst not a tax-specific update, from an operational standpoint, FPIs should benefit from reduced funding costs, particularly during index rebalancing days, as such events typically involve large purchase or sale transactions in stocks entering or exiting an index. By enabling more efficient settlement and funding adjustments, the proposal should ease liquidity pressures, minimize the need for additional short-term funding, and improve overall capital efficiency for FPIs during these high-volume trading periods.

Please see here for details of the paper and further background.