From STT to LTCG and STCG: Capital market seeks ease in tax norms in Budget 2025

As the government gears up to unveil the Union Budget 2025-26 on February 1, expectations are high for initiatives that will promote India’s financial sector and sustain the confidence of both domestic and global investors. With India aiming to become a developed nation by 2047—Viksit Bharat—the capital market, currently the world’s fifth largest, is set to play a crucial role in achieving this milestone.

Despite fragile global equity markets, geopolitical tensions, rising inflation, and tighter monetary policies, Indian capital markets emerged as one of the best performers in 2024. The primary equity market, in particular, outshone global peers, with initial public offering (IPO) volumes reaching an all-time high of $19.9 billion—a two-decade record. This remarkable surge reflects growing investor confidence in India’s economic resilience and dynamism despite global volatility.

The Union Budget 2025 presents an opportunity to elevate the Indian capital market into the top three globally in terms of market capitalisation, currently led by the U.S., China, and Japan. While the Indian capital market’s outlook remains strong, industry players are seeking government support through rationalisation of transaction costs and simplification of tax structures to make the domestic equity market the most attractive avenue for trade and investment.

The Association of Mutual Funds in India (AMFI) has proposed reducing short-term and long-term capital gains (STCG and LTCG) taxes, along with lowering the securities transaction tax (STT). Additionally, it has urged the government to reinstate indexation benefits, which could encourage long-term investments in equities and mutual funds.

Key expectations from the capital market

Increase LTCG exemption limit and reduce STT: Ajay Lakhotia, Founder & CEO, StockGro

“In a bid to foster an inclusive investment ecosystem, I hope the government considers increasing the long-term capital gains (LTCG) exemption limit to ₹5 lakh and reducing the Securities Transaction Tax (STT). Expanding capital gains exemptions under Sections 54 and 54F for residential property reinvestment would further support India’s vision of a robust financial market,” says Ajay Lakhotia, Founder & CEO, StockGro.

For startups, Lakhotia urges the government to simplify compliance with the Registrar of Companies (ROC) and keep most sectors under the automatic FDI route to attract more capital into the ecosystem. “These initiatives will not only drive innovation but also strengthen the job market. Collectively, they can help realise our vision of Viksit Bharat and promote economic progress for all,” he adds.

Raise disposable income through tax exemptions: Santosh Meena, Swastika Investmart

Santosh Meena, Head of Research at Swastika Investmart, sees the upcoming Union Budget as a potential catalyst for growth and investor confidence.

“Bold measures to boost domestic consumption, a key pillar of economic growth, are essential. While rural demand has shown signs of recovery, urban demand remains sluggish and requires immediate attention,” says Meena.

“Increasing disposable income through tax exemptions or job creation for the middle class could be an effective way forward. There is speculation that the government might raise the tax exemption limit for individual incomes up to ₹10 lakh, which could significantly boost consumption,” he adds.

Focus on fiscal discipline and internal resilience: Chandraprakash Padiyar, Tata Asset Management

Chandraprakash Padiyar, Senior Fund Manager at Tata Asset Management, emphasises the importance of fiscal discipline and internal resilience for India’s long-term growth, especially amid global capital shifts towards the U.S. and rising protectionism.

“With the new U.S. president promising further protectionist policies, every economy must focus on its strengths and internal growth. Fiscal discipline and other macroeconomic parameters will be critical in these times,” says Padiyar.

He further suggests that India should continue on the path of fiscal consolidation and work towards reducing the debt-to-GDP ratio, which will play a crucial role in sustaining long-term economic growth.

Growth-oriented budget to boost the economy: Vikram Kasat, Prabhudas Lilladher Capital

Vikram Kasat, Head of Advisory at Prabhudas Lilladher Capital, believes that while the government may miss its revenue collection targets, lower capital expenditure could help sustain the fiscal deficit in FY25.

He expects a growth-oriented budget that aims to stimulate the economy and incentivise the middle class to increase spending. “The government’s focus should be on policies that drive economic expansion while maintaining fiscal discipline,” says Kasat.