Can India abolish LTGC tax? SBI Research says Centre has ‘fiscal headroom’ to absorb loss, suggests alternatives

The Centre could abolish long-term capital gains (LTCG) tax and have enough room to absorb potential revenue losses, according to a report by SBI Research. It pegged the potential revenue loss for FY28 between ₹40,000-50,000 crore, PTI reported.

The lender's latest Ecowrap report noted that abolishing LTGC across investor categories could be done “without significantly disrupting the government's fiscal consolidation plans”. The revenue shortfall would be 0.1-0.2% of GDP, which the government “could absorb while remaining on its fiscal glide path”, it said.

Could Centre abolish LTGC tax?

According to the SBI Research report, LTCG collections for FY26 are estimated at around ₹1 lakh crore and is projected to decline to ₹40,000-50,000 crore in FY27. It added that ₹1.3 lakh crore collected in FY25 was “unusually high” and came as the stock market gave about 30% returns in the preceding fiscal year — where foreign investors realised their gains.

It added that the market environment is different at present — the Nifty's average return over the last three years at just 0.5% and cumulative foreign institutional investor (FIIs) outflows at ₹4.8 lakh crore. “We believe the Government would be able to take this hit if hypothetically, the entire capital gains taxes were abolished,” it stated.

What can be done instead? Suggestions include…

Alongside abolition, the report suggested changes to the broader capital gains tax structure.

• To offset some of the revenue loss, SBI Research suggested increasing Securities Transaction Tax (STT) by 50%, which it estimated could generate around ₹45,000 crore in additional revenue in FY28.
• The report also proposed deferring LTCG tax on mutual fund redemptions when proceeds are reinvested in eligible equity mutual funds within 90 days.

What could be benefits of abolishing LTCG?

SBI Research had first proposed the abolition of LTCG tax in its October 12 Ecowrap report, arguing that the move could help attract foreign capital and improve investor sentiment amid sustained foreign portfolio investor (FPI) outflows from Indian equities.

It had also called for extending preferential tax treatment to investments held for two to three years to encourage longer-term capital commitments and make Indian equities more attractive to global investors.