The Centre is considering a proposal to do away with long-term capital gains (LTCG) tax on listed equities to generate more foreign long-term investment, The Economic Times reported.

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The government is consulting tax advisers and experts to know the possible implications of removing the tax on LTCG introduced amid much criticism in the last year's budget, said the ET report, citing people with knowledge of the discussions.

According to the report, the government may tweak the definition of 'long term' from a year to two years. At present, 10 tax percent is levied on LTCG.

The removal of LTCG tax is in sync with PM Modi's speech in New York in September 2019 where he promised foreign investors that the government was working towards "bringing tax on equity investments in line with global standards", the report said.

The government wants to differentiate between a strategic investor and a short-term investor, it added.

“It will be a tough sell to merely slash LTCG two years after it was introduced. But this is crucial for foreign investors and so if the holding period is increased to two years, that incentivises long-term investors,” ET quoted a person involved in the discussions as saying.

As per the ET report, several FPIs had also reached out to the government and sought removal of LTCG. The report also said that several foreign investors decided to stay away from divestment plans due to LTCG and other tax-related issues.