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During the meeting with Finance Minister Nirmala Sitharaman, it was also suggested that employees' provident fund should increase its exposure in the stock market, which in turn would improve liquidity.
Capital market participants and foreign institutional investors on Friday presented a charter of demands to Finance Minister Nirmala Sitharaman, which included rollback of surcharge on FPIs, review of dividend distribution tax and lowering of LTCG tax, in a bid to shore up investors' sentiments.
Sources said Sitharaman gave a patient hearing to them but restrained from making any firm commitments.
Equity benchmarks rose for the second straight session on Friday amid hopes that the government may take some market-friendly measures to jumpstart the sluggish economy and assuage investor concerns over taxation.
The meeting is part of the exercise being undertaken by the minister to firm up steps to increase investments and boost economy, which is showing signs of slowdown.
During the meeting, it was also suggested that employees' provident fund should increase its exposure in the stock market, which in turn would improve liquidity, industry and official sources added.
There was also a suggestion that the long-term capital gains (LTCG) tax be abolished or at least reduced.
They suggested that higher surcharge on income beyond Rs 2 crore, which was imposed in the Budget, should not be applicable on FPIs.
The government's decision on surcharge had impacted the market.
Participants also expressed concerns over the current KYC norms for FPIs and demanded it should be relaxed as part of ease of doing business.
There was also a demand to abolish the withholding tax on masala bonds or rupee-denominated bonds.
FPIs who participated in the meeting include Goldman Sachs, Nomura, Blackrock, CLSA, Barclays, and JP Morgan.
Talking to reporters after the meeting, Vikaram Limaye, CEO and MD of NSE, said the minister was "very receptive". He, however, did not elaborate on the discussions.
President of Association of National Exchanges Vijay Bhushan suggested that transaction cost in capital markets should be reduced and brought in line with the global rates.
Raman Aggarwal, chairman of Finance Industry Development Council, was of the view that there is a need to look beyond banks for funding of NBFCs. He was for setting up a National Housing Board (NHB)-like regulator for the NBFC sector as well.
Sitharaman is holding a series of meeting with different stakeholders.
She has already met bankers and industry groups before taking measures to prop up the economy.
Earlier in the day, she had said at an industry meet that the government and the Reserve Bank of India were on the same page regarding steps required to give a push to economic activities.