LTCG Tax On Equities To Be Scrapped? Finance Ministry Gives Big Clarification

Several stakeholders in the Indian securities market have made representations over the past few years for scrapping the Long-Term Capital Gains (LTCG) tax.

However, the government has officially clarified that there is no proposal currently under consideration to scrap the LTCG tax on the sale of equities. Notably, the demand has been prevalent as retail investors hope for tax relief amidst recent market volatility.

On July 20, a clarification was sought during a Lok Sabha session by Samajwadi Party Member of Parliament, Anand Bhadauria. Bhadauria asked questions to the Finance Minister regarding the revenue generated via LTCG tax.

"The details of revenue generated from Long Term Capital Gains (LTCG) Tax on equity transactions during the financial years 2023-24, 2024-25, 2025-26 and 2026-27 till date, year- wise," Bhadauria said.

Bhadauria also alleged disparity in tax treatment between domestic retail investors and foreign portfolio investors.

"Whether the Government has recently exempted Foreign Portfolio Investors (FPIs) from LTCG tax to attract inflows while domestic and retail investors continue to pay 12.5 per cent LTCG tax amid the worst two-year performance of the Indian equity markets in the world," Bhadauria said.

Bhadauria also requested the minister to provide a timeline for the scrapping of LTCG for retail investors.

"The time by which the Government would scrap LTCG for retail/domestic investors to revive market sentiment, protect domestic investors and ensure a level playing field between foreign and Indian investors?" Bhadauria said.

What The Finance Ministry Said About LTCG

Minister of State for Finance, Pankaj Chaudhary, replied to the question and maintained the government’s stance, confirming that no changes are imminent.

"At present, there is no such proposal under consideration," Chaudhary said.

Providing the official revenue figures, the minister detailed collections to the tune of Rs 72,249 crore in Assessment Year (AY 2024-25 and Rs 1,29,158 crore in AY 2025-26).

"Revenue generated from Long Term Capital Gains Tax (LTCG) Tax on equity transactions AY 2024-25 (Relevant to the financial year 2023-24) Rs 72,249 Crore AY 2025-26 (Relevant to the financial year 2024-25) Rs 1,29,158 Crore," Chaudhary said.

Addressing concerns about discriminatory treatment, Chaudhary clarified that the rules for FPIs and retail investors remain exactly the same for equity investments and only apply to the exemption on LTCG imposed on Government Securities.

"The tax rate of 12.5 per cent on LTCG for domestic and retail investors is the same for FPIs for investments in equity,” Chaudhary said.

The government exempted FPIs through the Income-tax (Amendment) Ordinance, 2026, from income tax on interest or capital gains starting April 1, 2026. Chaudhary highlighted global competitiveness as the reason for the change.

"Additionally, this amendment was brought in recognising the importance of a competitive tax regime in attracting global capital," Chaudhary said.

When Was LTCG Introduced

The LTCG was abolished in 2004 to encourage long-term investment and was replaced by the Securities Transaction Tax. Due to this, investors made long-term tax-free gains for over a decade. However, LTCG was reintroduced in the Union Budget of 2018 at a 10 per cent rate on gains exceeding Rs 1 lakh.  In July 2024, the rate was further increased to 12.5 per cent. Since 2018, there have been requests not to impose the tax.

While the government has clarified that, currently, there are no such proposals under consideration, the demand remains, as an exemption from LTCG tax can potentially increase participation in the market. Removing the tax could significantly boost domestic capital formation by making long-term retail investments lucrative while providing companies with easier access to equity capital to fund macroeconomic growth.