Govt may review LTCG tax on equities in coming weeks

At present, long-term capital gains on the sale of listed equities are taxed at 12.5%, without indexation benefits. The tax applies to gains exceeding Rs 1.25 lakh in a financial year.

In Short

• Government may review LTCG tax on equities before Union Budget
• Current LTCG tax is 12.5% on gains above Rs 1.25 lakh for listed shares
• Review aims to boost attractiveness of Indian equities to investors

The government may review the long-term capital gains (LTCG) tax on equities in the coming weeks, ahead of the Union Budget, Moneycontrol reported, quoting sources familiar with the discussions. The move could affect both foreign and domestic investors, as the Centre examines ways to make Indian equities more attractive.

According to the report, the government is considering changes to the existing LTCG tax structure, including a review of the tax rate in comparison with those in major economies.

WHAT IS THE CURRENT LTCG TAX ON EQUITIES?

At present, long-term capital gains on the sale of listed equities are taxed at 12.5%, without indexation benefits. The tax applies to gains exceeding Rs 1.25 lakh in a financial year.

For unlisted shares, the Rs 1.25 lakh exemption limit does not apply, according to the report.

Indexation allows investors to adjust an asset's purchase price for inflation over time, reducing the gains on which tax is calculated. The current equity LTCG framework does not provide this benefit.

WHY IS THE GOVERNMENT CONSIDERING A REVIEW?

The Centre has held several meetings with industry representatives, the Securities and Exchange Board of India (SEBI), the Central Board of Direct Taxes (CBDT), banks and other stakeholders to discuss the LTCG framework and its impact on capital outflows, according to the report.

A government official said that a decision on restructuring the tax could be taken soon, the report cited.

A senior banking official familiar with the discussions said there was recognition within the government that the tax structure needed to be reviewed to improve the competitiveness of Indian equities and make them more attractive to foreign investors. The government is examining the proposals, including those related to LTCG, the report mentioned.

The review comes amid significant foreign portfolio investor (FPI) outflows from Indian equities.

According to data from Central Depository Services Ltd (CDSL), cumulative FPI outflows from equities reached Rs 3.1 lakh crore in 2026 so far. This is substantially higher than the Rs 1.7 lakh crore withdrawn during the whole of 2025, the report mentioned.

The government is examining whether changes to the tax framework could help make Indian equities more competitive for foreign investors.

On October 13, Finance Minister Nirmala Sitharaman said the government was keen to hear views on the removal of LTCG tax.

However, no final decision on restructuring the tax has been announced. The report said an email sent to the Finance Ministry had not received a response at the time of publication, and the article would be updated if a response was received.

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