AS INVESTORS grapple with a flat stock market trajectory for more than two years now, discussions within the government in the run-up to Budget 2027-28 include lowering the long-term capital gains tax from 12.5% now for both domestic and foreign investors, and letting foreign investors pay this tax on capital gains made in dollar terms as opposed to in rupee terms, to boost market sentiments.

Officials say the urgency to act fast is due to two key concerns. One, zero returns or losses in stock markets over the last two years come on top of poor wage growth, and this is a big sentiment dampener. It is felt across a larger spectrum of middle class with surging retail participation in markets now.

Post-Covid, stock market investments witnessed a sharp rise in participation by retail investors (those holding up to Rs 2 lakh in shares) looking to diversify and supplement their regular income streams.…