- Finance Minister Nirmala Sitharaman did not rule out changes to LTCG tax in the next budget
- She noted the government is open to hearing views on securities transaction tax and LTCG issues
- Current LTCG tax on listed equity gains is 12.5% with a Rs 1.25 lakh exemption limit
Finance Minister Nirmala Sitharaman on Tuesday declined to rule out changes to the long-term capital gains tax regime. She said preparations for the next Union Budget have begun, so this was not the right moment for her to say what the government would consider.
Speaking at the Bloomberg New Economy Forum in New Delhi, Sitharaman acknowledged that investors in India and abroad have been commenting on the issue.
She also pointed to the securities transaction tax as a related question. Market participants, she noted, have raised the issue of whether all asset classes should be treated similarly. The government will keenly hear views on these matters, she added.
The remarks come as the government prepares the Union Budget 2027-28, due to be presented on Feb. 1.
Where LTCG Tax Stands Now
Under current rules, long-term gains on listed equity shares and equity mutual funds held for more than 12 months are taxed at 12.5%. Gains up to Rs 1.25 lakh a year are exempt. These rates were set in the July 2024 Budget, which raised the LTCG rate from 10% and lifted the exemption limit from Rs 1 lakh.
Budget 2026 left the capital gains framework unchanged, even as many investors had hoped for a lower rate or a higher exemption. It did raise STT on futures and options trades.
Industry bodies and foreign investors have repeatedly flagged India's capital gains tax as a factor weighing on equity flows. Foreign portfolio investors have been net sellers of Indian equities for long stretches this year.
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Market Reacts
The BSE Sensex surged about 650 points and the NSE Nifty 50 neared 22,600 after Sitharaman said the government would keenly hear views on LTCG tax and STT. The climb in benchmark indices indicated that investors read the finance minister's remarks as the clearest signal yet that the government is open to revisiting the tax treatment of equity gains.
Stocks of brokerages, exchanges and asset management companies are among the most sensitive to any change in LTCG or STT, since both taxes directly affect trading volumes and investor returns.
For foreign portfolio investors, the tax on capital gains is a key part of return calculations when comparing India with other emerging markets. Any relief could make Indian equities more attractive at a time when valuations and global flows remain under scrutiny.
Still, Sitharaman gave no commitment, and the fiscal cost of scrapping or cutting LTCG tax would be significant. Market participants will now look to pre-Budget consultations with industry and investor groups over the coming months for clearer signals ahead of Feb. 1.
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