India’s long-term capital gains (LTCG) tax is back in the spotlight as investors demand a review of the tax burden on stock market profits. With several major financial markets offering different tax treatments, the debate is growing over whether India should make investing more attractive.
What Is LTCG Tax?
Long-Term Capital Gains (LTCG) tax is the tax investors pay on profits earned when they sell investments after holding them for a specified period.
For listed equity shares and eligible equity-oriented mutual funds in India, the current LTCG tax rate is 12.5% on annual gains exceeding ₹1.25 lakh, subject to applicable conditions. Securities Transaction Tax (STT) is also charged separately on eligible transactions.
For example, if an investor earns ₹2 lakh in eligible long-term equity gains during a financial year, ₹75,000 would be above the ₹1.25 lakh exemption threshold. At a 12.5% rate, the basic LTCG tax would be ₹9,375, before any applicable surcharge and cess.
How Does India Compare With Six Major Markets?
Countries follow different rules for taxing investment profits.
- Singapore: Generally does not tax capital gains on listed shares when the gains are capital in nature rather than trading income.
- Hong Kong: Generally does not impose capital gains tax, although profits treated as trading income may be taxable.
- United States: Long-term capital gains are generally taxed at 0%, 15% or 20%, depending on income and other applicable rules.
- United Kingdom: Capital gains tax rates for individuals generally include 18% and 24%, depending on the applicable rules and circumstances.
- Japan: Listed-share gains are generally taxed at 20.315%, including local tax.
- Australia: Eligible individuals can receive a 50% capital gains discount on assets held for at least 12 months, with the remaining gain generally taxed at their applicable marginal rate.
These comparisons are not exactly like-for-like because countries have different exemptions, tax brackets, holding periods and residency rules. However, they show why investors compare India's tax structure with those of competing markets.
Why Are Investors Asking for LTCG Tax Relief?
Investors and market participants argue that lower capital gains taxes could improve post-tax returns and encourage more people to invest in equities.
Three major concerns are driving the debate:
1. Lower returns after tax
When investors sell shares at a profit, taxes reduce the amount they retain. Investors seeking higher post-tax returns want the government to review the existing rates.
2. Competition with global markets
Financial hubs such as Singapore and Hong Kong generally do not impose capital gains tax on listed shares. Some investors believe India's combined capital gains tax and transaction costs can make its markets less competitive.
3. Foreign investment flows
A more competitive tax structure could help attract foreign investors. However, investment decisions also depend on stock valuations, company earnings, currency movements and global economic conditions.
SBI Research Suggests Scrapping LTCG Tax
The debate has gained attention following an SBI Research proposal to remove LTCG tax on equities and increase the qualifying holding period to two or three years to encourage longer-term investments.
Supporters believe this could improve post-tax returns and encourage investors to remain invested for longer.
However, this is a proposal, not an approved policy change. Investors should not assume that LTCG tax relief has been announced.
Will the Government Reduce LTCG Tax?
Finance Minister Nirmala Sitharaman has indicated openness to hearing views on LTCG tax and Securities Transaction Tax (STT), bringing the issue back into discussion ahead of Budget 2027.
Investors are also seeking a review of STT, which adds to transaction costs. Reducing these taxes could improve market participation, but it could also affect government revenue.
The government must balance investor interests with revenue requirements, market stability and the need to discourage excessive speculation.
What Does This Mean for Retail Investors?
For ordinary investors, the key issue is how much of their investment profit they can retain after tax.
A reduction in LTCG tax could increase post-tax returns, while an unchanged tax structure would mean investors continue to pay taxes under the existing rules.
Until an official announcement is made, investors should calculate their returns using current tax provisions rather than expecting a future tax cut.
Final Takeaway
India's LTCG tax debate is about more than just tax rates. It raises an important question: can India encourage long-term investing and attract more domestic and foreign capital while maintaining government revenue?
Investors will be watching closely for any developments ahead of Budget 2027. For now, tax relief remains a subject of discussion, not a confirmed change
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