No proposal to scrap LTCG tax on equities, govt tells Parliament

The Centre on Monday ruled out abolishing the long-term capital gains (LTCG) tax on listed equities, saying there is currently no proposal to withdraw the levy for retail and domestic investors. 

Replying to a question in the Lok Sabha, Minister of State for Finance Pankaj Chaudhary said the government has no plans at present to scrap the LTCG tax despite repeated demands from sections of the market to remove the levy in order to boost investor sentiment. He, however, said tax policies, including capital gains tax rates, are reviewed periodically as part of the annual Union Budget exercise after considering the prevailing macroeconomic conditions. 

The clarification comes amid recurring calls from investors and market participants to either abolish the LTCG tax or raise the exemption threshold, with many arguing that the levy discourages long-term investing and lowers post-tax returns. Some have also sought parity between domestic investors and certain foreign investors following the government's recent tax relief for foreign portfolio investors (FPIs) investing in government securities. 

Government data showed that LTCG tax collections from equity transactions surged nearly 78% between the last two assessment years. Collections rose from ₹72,249 crore in Assessment Year (AY) 2024-25 (relevant to FY24) to ₹1,29,158 crore in AY 2025-26 (relevant to FY25), taking the cumulative collection over the two years to more than ₹2.01 lakh crore. 

Under the current tax regime, long-term capital gains on listed shares and equity-oriented mutual funds are taxed at 12.5% on gains exceeding ₹1.25 lakh in a financial year. Gains up to this threshold remain exempt. A listed equity investment qualifies as a long-term capital asset if it is held for more than 12 months. 

Short-term capital gains (STCG) on listed equities are taxed at 20%. These tax rates have remained unchanged since the revisions announced in the Union Budget presented in July 2024. 

The issue has resurfaced repeatedly over the past year as benchmark equity indices scaled record highs and retail participation in the stock market continued to grow. Several market experts and investors have argued that lowering the LTCG tax rate or increasing the exemption limit would encourage long-term investing and improve market sentiment. 

However, the Finance Ministry has consistently maintained that there is no proposal to abolish the tax. Monday's response in Parliament reiterates the government's position that while capital gains taxation is reviewed periodically during the Budget process, there is currently no plan to scrap the LTCG tax on equity investments.