Why is there a growing demand to reduce LTCG tax? How much revenue does the Indian government earn from it?
LTCG TAX: Finance Minister Nirmala Sitharaman recently expressed her interest in hearing views on long-term capital gains (LTCG) tax, acknowledging the debate over the levy ahead of the Union Budget in February next year.
FM Sitharaman said that LTCG tax, Securities Transaction Tax (STT) and the taxation of different asset classes remained important subjects of discussion among investors. Replying to a question at the Bloomberg New Economy Forum in New Delhi, FM said, “We are very close to the budget and the preparation for the budget has started, and it may not be the best time for me to say what I will or what I will not consider.”
Amid heavy outflows of foreign capital, demand to scrap the LTCG tax has been growing among market participants. Many experts and market participants have dubbed STT, along with the capital gains levy, as a double whammy for both local and foreign investors.
According to SBI Research, foreign investors have withdrawn ₹44,166 crore from Indian equities so far in October, bringing the total outflows this year to more than ₹3 lakh crore as elevated crude oil prices, a firmer US dollar and higher US bond yields weigh on investor sentiment. Also, the artificial intelligence-led rally in North Asian markets is attracting more foreign capital.
"The government must seriously look into anchoring hot money flows into equity segment by extending the holding period to say 2-3 years and abolishing the long-term capital gains tax for equity," SBI Research said in its Ecowrap report.
The revenue generated from LTCG tax in AY 2024-25 stood at ₹72,249 crore and for AY 2025-26 jumped sharply to ₹1,29,158 crore. This data was shared by Pankaj Chaudhary, Minister of State for Finance, in the parliament in July this year. The ITRs for AY 2026-27 weren't filed then, since the data for AY 27 was not available, the MoS informed.
In the Union Budget 2024-25, FM Sitharaman announced a series of tax changes. The government had increased the short-term capital gains tax (STCG) on certain financial assets to 20% from 15%. The long-term capital gains tax on all financial and non-financial assets was increased to 12.5%.
The LTCG tax rate on listed equity and equity mutual funds was increased from 10% to 12.5%, and the exemption limit was also increased from ₹1 lakh to ₹1.25 lakh per year. At the same time, the government also removed the indexation benefit for long-term capital assets like real estate and gold, while lowering the LTCG tax rate from 20% with indexation to 12.5% without indexation.
Devansh Sharma is Deputy Editor at Mint (Digital), where he leads newsroom operations and helps shape the website's editorial strategy. With nearly 15 years of experience in business journalism, he specialises in business, personal finance, stock markets, mutual funds, and economic developments, while also covering geopolitics and major breaking news. During his tenure at Mint, which spans nearly two years, he has led planning and coverage of key news events, including the Union Budget, RBI monetary policy announcements, US Federal Reserve decisions, elections, and major international developments.<br><br> Devansh holds a Master's degree in Journalism & Mass Communication from the School of Communication Studies, Panjab University. Before rejoining Mint, he worked with leading business news organisations, including The Economic Times, Moneycontrol, and ET Money. At ET Money, he served as Senior Investor Educator, where he created educational content to help readers better understand investing, mutual funds, and personal finance. Throughout his career, he has focused on making complex business and financial developments accurate, accessible, and relevant for a broad audience.
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