The government on Monday ruled out the possibility of abolishing the long-term capital gains (LTCG) tax on listed equities, stating that there is currently no proposal to withdraw the levy for retail or domestic investors.
Replying to a question in the Lok Sabha, Minister of State for Finance Pankaj Chaudhary said the Centre has no plans at present to eliminate the LTCG tax, despite demands from sections of the market seeking its removal to improve investor sentiment.
He added that tax policies, including capital gains taxation, are reviewed periodically as part of the annual Union Budget process, taking into account prevailing macroeconomic conditions.
The clarification comes amid repeated appeals from investors and market participants to roll back the tax. Some have argued that the levy discourages long-term investment by lowering post-tax returns, while others have sought parity between domestic investors and certain foreign investors after the government announced tax exemptions for foreign portfolio investors (FPIs) investing in government securities.
However, the government indicated there is little scope for such a change, citing a substantial increase in revenue generated through the tax.
According to figures presented in Parliament, collections from LTCG tax on equity transactions rose by nearly 78% to Rs 1,29,158 crore in Assessment Year 2025-26, compared with Rs 72,249 crore in the previous year, reflecting the growing contribution of the levy to government revenue.
Current LTCG tax structure
Long-term capital gains are earned when listed shares or equity-oriented mutual funds are sold after being held for more than one year.
Under the existing tax regime, long-term gains exceeding Rs 1.25 lakh in a financial year are taxed at 12.5%, while gains up to that limit remain exempt.
Short-term capital gains on listed equities continue to be taxed at 20%.
These tax rates have remained unchanged since the revisions announced in the Union Budget presented in July 2024.
Why investors anticipated a revision
The issue has resurfaced repeatedly over the past year as equity markets reached record highs and retail participation increased significantly. Many investors and market experts had argued that lowering the LTCG tax rate or raising the exemption threshold could encourage long-term investment and strengthen market sentiment.
Despite these expectations, the government's position has remained unchanged. Similar demands to abolish the tax have been raised in Parliament on previous occasions, with the Finance Ministry consistently stating that there is no proposal under consideration to withdraw the levy.
Monday's clarification reiterates that stance. While the government maintains that tax policies are reviewed regularly as part of the Budget process, there is currently no indication that it intends to abolish the LTCG tax on equity investments.
