LTCG tax on equities: Govt may restructure rates in coming weeks; how much could investors save at 10%, 5% or 2%?

The government is considering changes to the long-term capital gains (LTCG) tax on equities. A decision might be taken in the coming weeks before the Union Budget in February 2027, Moneycontrol reported on Monday, citing sources familiar with the matter, including a government official.

“A decision on restructuring is expected soon,” an official told Moneycontrol. The official added that the government is comparing India’s LTCG tax rate with those prevailing in major economies.

The report also mentioned that the government is examining whether LTCG paid by foreign investors should be calculated on gains made in dollar terms. Currently, capital gains are calculated in rupees.

A reduction in the tax rate could lower investors’ tax liability when they sell equity investments at a profit. Here is what investors need to know.

Currently, profits from listed equity shares and equity-oriented mutual funds are treated as long-term capital gains if held for more than 12 months.

Investors pay LTCG tax at 12.5% on eligible gains exceeding ₹1.25 lakh in a financial year. Applicable cess and surcharge are levied separately.

In its Ecowrap report dated 12 October 2026, SBI Research suggested that, “The government must seriously look into anchoring hot money flows into the equity segment by extending the holding period to say 2-3 years and abolishing the long-term capital gains tax for equity.”

Separately, according to a News on Air report dated 13 October, Finance Minister Nirmala Sitharaman said: “The Government is open to hearing suggestions on the removal of long-term capital gains tax during consultations for the upcoming Union Budget.” She made the remarks at the Bloomberg New Economy Forum in New Delhi.

The following calculations illustrate the potential tax savings if the rate is reduced to 10%, 5%, or 2%, assuming the ₹1.25 lakh annual exemption remains unchanged and excludes cess and surcharge.

*Estimated figures before cess and surcharge

Annual LTCG is the profit earned from selling eligible equity investments after accounting for the acquisition cost. For example, if your annual LTCG is ₹1 lakh, it falls below the exemption limit, so no LTCG tax is payable.

If your gains are ₹2 lakh, the taxable amount is ₹75,000 after deducting the ₹1.25 lakh exemption. At the current 12.5% rate, the tax comes to ₹9,375. On ₹5 lakh in gains, the taxable amount is ₹3.75 lakh, resulting in tax of ₹46,875 at 12.5%.

For annual LTCG of ₹2 lakh, ₹75,000 would be taxable after deducting the ₹1.25 lakh exemption. The tax payable under different hypothetical rates would be:

• At 10%: Tax payable would be ₹7,500, saving ₹1,875.
• At 5%: Tax payable would be ₹3,750, saving ₹5,625.
• At 2%: Tax payable would be ₹1,500, saving ₹7,875.

No LTCG tax would be payable on any amount of equity gains, assuming the government abolishes the tax. These are hypothetical scenarios, not confirmed proposals. Investors should continue to calculate their tax liability using the prevailing rules until the government announces any changes.

Sheetal Goel is a Content Producer at Livemint, where she covers corporate developments, personal finance, business trends, markets, and SEBI-related updates. She focuses on simplifying complex financial concepts and presenting them in a clear, reader-friendly manner, thereby helping audiences better understand investment trends, personal finance, and market developments. Her writing focuses on making finance more accessible to everyday readers while maintaining clarity, accuracy, and relevance. <br><br> She holds a degree in Economics (Hons.) along with an MBA in Finance, which has helped her develop a strong foundation in financial analysis, market understanding, and business reporting. Before joining journalism, she worked with finance and broking firms, where she closely followed market developments, investment strategies, and evolving industry trends. This practical exposure strengthened her understanding of financial markets. She has also written content across multiple formats and platforms, including YouTube, LinkedIn, and Instagram. <br><br> Over time, she has developed expertise in covering market-linked stories, investor-focused topics, and regulatory updates in a simplified yet informative style. She also enjoys reading and listening to Hindi poetry, reflecting her appreciation for literature and creative expression beyond the world of markets and numbers.

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