At a time when foreign portfolio investors (FPIs) continue to pull money out of Indian markets, concerns around taxation and policy consistency are once again under the spotlight. Speaking to ET Now, market expert Sudip Bandyopadhyay said India needs to seriously reconsider the structure of securities transaction tax (STT) and long-term capital gains tax (LTCG) if it wants to remain an attractive destination for global capital.According to Bandyopadhyay, while domestic retail participation has helped prevent a sharp market collapse despite sustained FPI selling, that should not lead policymakers into believing foreign investors are no longer important.“We need FPIs to be in the market and invest in India because we need well-rounded economic growth and a strong capital market,” he said.He pointed out that many global investors feel structurally disadvantaged while investing in India because of the current tax framework. Most international markets, he noted, do not impose taxes of this nature at the same scale, making India comparatively less competitive.Bandyopadhyay specifically highlighted long-term capital gains tax and short-term capital gains tax as major irritants for foreign investors. On top of these, the presence of STT adds another layer of cost to market participation.Debate Around STT and LiquidityExplaining the origins of STT, Bandyopadhyay said the tax was initially introduced as a substitute for LTCG tax. However, over time, both taxes have remained in place simultaneously, something he described as unfair to investors.“When STT was introduced, it was introduced in lieu of long-term capital gains tax. Now, we have a situation where both STT is there and LTCG is there,” he said.While he acknowledged that STT does have some impact on liquidity, he clarified that this is not the primary concern for foreign investors. In his view, investors would be willing to accept STT if LTCG was removed.He also stressed another recurring concern voiced by global investors — frequent policy changes.“One consistent kind of grievance I would say they have is that why do you guys keep changing the law every now and then. You have a structure and keep it constant. Do not keep changing the rules of the game after the game has started,” Bandyopadhyay said.According to him, foreign investors typically make investment decisions based on long-term assumptions and financial projections. Sudden changes in taxation through annual budgets create uncertainty and reduce confidence in policy stability.Tax Collections Not Significant in Current Market ConditionsOn the question of how much revenue the government could potentially lose if it cuts or removes these taxes, Bandyopadhyay argued that the actual impact may be limited in the present market environment.He noted that many investors are currently sitting on losses after two years of lacklustre market performance, meaning meaningful LTCG collections are unlikely anyway.“First people have to make money in the market, then only the capital gains tax comes in,” he said.Describing India as one of the weaker-performing markets globally over the last two years, he questioned how much revenue the government realistically expects to earn through capital gains taxes under such conditions.He further added that STT collections, while steady, form only a very small part of the government’s overall budget revenues.“And anyway the STT which the government earns is again minuscule and if you ask me, these are rounding off figures in the government's budget, but these are big irritants for the investors,” Bandyopadhyay said.Balancing Revenue and Investor ConfidenceThe discussion comes at a crucial time for Indian markets, where policymakers are trying to balance revenue generation with the need to attract stable foreign investment flows. While retail participation has remained resilient, market participants continue to believe that long-term foreign capital remains essential for deeper liquidity, better price discovery, and sustained economic growth.For many investors, the larger issue may not just be taxation itself, but the predictability of policy. Stability and consistency, experts argue, often matter as much as the tax rate when global funds decide where to allocate capital.