India's long-term capital gains tax on equities, reintroduced in 2018 after a decade-long absence, has quietly become one of the most contentious policy levers affecting foreign portfolio flows. Aditya Shah, Founder of Hercules Advisors, says the government can no longer afford to sit on the fence: a complete removal of LTCG for foreign investors is the only credible signal that will bring FPIs back."If you want foreigners to come and invest in India, you cannot have a taxation format which is much different from any other country around the world," says Shah.Shah acknowledges that the government is now showing willingness to reconsider its position — partly driven by the sharp depreciation of the rupee, which has itself been worsened by sustained FPI selling. He welcomes this as a positive first step, but cautions that tweaks to the LTCG threshold or holding period will not move the needle. Only a clean, unconditional removal for foreign investors will restore India's competitiveness as an investment destination.ETMarkets.comShah's three-point case for scrapping FPI-LTCGIndia's LTCG framework is out of step with global peers. No comparable emerging market levies capital gains on foreign portfolio inflows at this rate.The revenue lost from removing the tax is far outweighed by indirect gains: lower cost of capital, higher employment, and deeper equity markets.Reverting to the pre-2018 regime, where LTCG did not exist, would send an unambiguous signal that India is open for foreign investment.On the widely-circulated narrative that domestic institutional investors (DIIs) and SIP inflows can absorb FPI exits, Shah is blunt: it is a flawed argument that was promoted to justify the mutual fund industry's growth, not sound market economics. A healthy capital market, he says, requires both foreign and domestic participation. FII money is structurally important because it brings down the cost of capital — something SIP flows alone cannot replicate at scale.You Might Also Like:"In a healthy country, both domestic investors and foreign institutional investors will come and invest. Foreign money is absolutely required to decrease the cost of capital and drive further investment."says Shah.The backdrop to Shah's comments is a market that has absorbed multiple shocks simultaneously: FPI outflows, a weakening rupee, and geopolitical tensions including the US-Iran conflict. He argues that policy clarity on LTCG is one variable the government can actually control and act on quickly, making it the most effective lever available to arrest the sentiment slide and rebuild India's appeal as a destination for long-term foreign capital.