No proposal under consideration to scrap LTCG tax on equities, government clarifies

The central government on Monday said there is no proposal at present to abolish the long-term capital gains (LTCG) tax on equity transactions for retail and domestic investors, ending speculation over a possible rollback sought by some market participants over the last few months.

Minister of State for Finance Pankaj Chaudhary made the clarification in a written reply in the Lok Sabha after being asked the time by which the government would scrap LTCG tax for retail and domestic investors to revive market sentiment, protect domestic investors and ensure a level playing field between foreign and Indian investors.

“At present, there is no such proposal under consideration,” he said.

The minister also noted that the tax policies, including capital gains tax rates, are reviewed periodically as part of the annual budgetary process and legislative revisions after taking macro-economic parameters into consideration.

What is LTCG tax and when is it levied?

Long-term capital gains tax is levied on the profit made from selling a capital asset such as real estate, stocks, or mutual funds.

Listed equity shares and equity mutual funds are only treated as long-term capital assets if held for more than 12 months.

LTCG from their sale are taxed at a flat rate of 12.5%. However, the tax applies only to gains exceeding ₹1.25 lakh in a financial year.

Meanwhile, short-term capital gains on listed equities (held for less than 12 months) are taxed at 20%.

Revenue generated from LTCG tax on equities

The government's LTCG tax collections on equity transactions surged nearly 79% year-on-year, increasing from ₹72,249 crore in AY 2024-25 (FY 2023-24) to ₹1,29,158 crore in AY 2025-26 (FY 2024-25).

Across the two assessment years, the government collected ₹2.01 lakh crore in LTCG tax from equity transactions.

The response comes months after Union Finance Minister Nirmala Sitharaman said in May that the government is willing to listen to concerns raised by stock market investors regarding the taxation framework of LTCG and short-term capital gains (held for less than 12 months).

“On this specific issue, and on any issue, we are always ready and willing to listen to the people. We will certainly take their inputs," she was quoted as saying by news agency ANI.

Govt clarifies FPI tax relief applies only to G-secs

Responding to a question on whether the government has recently exempted foreign portfolio investors (FPIs) from LTCG tax while domestic and retail investors continue to pay the levy, the minister said the 12.5% LTCG tax rate on equity transactions is the same for FPIs, domestic investors and retail investors.

He specifically mentioned the income tax exemption only applies to interest or capital gains arising to FPIs from investments in government securities (G-Secs) on or after 1 April 2026.

“The tax rate of 12.5% on LTCG for domestic and retail investors is the same for FPIs for investments in equity. Through the Income-tax (Amendment) Ordinance, 2026, the government has rationalised the tax treatment applicable to investments by FPIs only in Government Securities (G-Secs), by exempting such investments from income tax on any interest or capital gain,” Chaudhary said.

Additionally, this amendment was brought in recognising the importance of a competitive tax regime in attracting global capital, he added.

“This step will align the taxation on G-Secs with many comparable jurisdictions. This will ensure stable systematic inflow of durable, patient foreign capital and long-term investors such as pension funds, insurance companies, and sovereign wealth funds (SWFs),” the minister said.