'How prudent this move is...': Top investor warns against India's reliance on volatile tax sources like stock market profits

Ace investor Shankar Sharma on Sunday raised concerns over India's taxation approach, warning that the government's increasing reliance on volatile sources like stock market profits over stable revenue streams such as corporate and personal taxes could have long-term implications. "The central direction of our taxation policy has been to reduce the share of predictable sources of tax (Corporate & Personal Tax), and increase reliance on volatile sources of tax like stock market profits. How prudent this policy move is, we will know between FY26-29," Sharma wrote on X.

His remarks come amid a sharp market correction, with the BSE Sensex plunging over 850 points on Monday, slipping below the 75,000 mark as foreign investors continued to exit amid global trade tensions. The NSE Nifty also fell 242 points, extending a five-session losing streak. Foreign Institutional Investors (FIIs) have pulled out over Rs 1 lakh crore from Indian equity markets in 2025, with Rs 23,710 crore withdrawn this month alone.

Sharma, who has been vocal about tax inefficiencies, had earlier criticised Budget 2025, calling it a "band-aid response to the middle-class cry for lower taxation" while failing to address India’s slowing growth. "Beyond that, it does not do anything to address the core problem, which is a growth slowdown. I think the full-year GDP number would be closer to 6 per cent or a tad lower," he had said in an interview with Business Today.

On the stock market slump, Sharma had pointed to the continued burden of securities transaction tax (STT) and long-term capital gains (LTCG) tax, calling for a rollback. "The Centre should have at least removed STT. When STT was introduced, LTCG was removed. Now we've got LTCG back in 2018, we got it hiked in the July Budget and STT was never reduced or removed. It should have been removed," he said.

Highlighting India's unique tax structure, Sharma contrasted it with global markets. "I invest globally. I pay zero capital gains tax anywhere. I only pay tax on dividend, which is minuscule. Nowhere in the world you get taxed on capital gains except India," he pointed out.

The broader market sentiment remains weak, with analysts warning that foreign outflows and expensive valuations continue to weigh down investor confidence. 

Prashanth Tapse, Senior VP (Research) at Mehta Equities Ltd, noted that global trade uncertainties and potential tariff retaliations by the US are adding to the pressure. "The market is more concerned about the US' likely move to reciprocate higher tariff levies on exporting nations, which could impact developing countries, including India," he said.