The government is reportedly considering a review of the long-term capital gains (LTCG) tax on equities in the near future, ahead of the upcoming Union Budget. This potential move could impact both domestic and foreign investors, as the Centre seeks to enhance the appeal of Indian equities. Sources familiar with the discussions suggest that changes to the current LTCG tax framework are under consideration, including an evaluation of the tax rate relative to those in other major economies.

Current LTCG Tax Framework

At present, long-term capital gains derived from the sale of listed equities are taxed at a rate of 12.5 per cent, without the benefit of indexation. This tax applies to gains exceeding Rs 1.25 lakh in a financial year. For unlisted shares, the exemption limit of Rs 1.25 lakh does not apply. Indexation allows investors to adjust the purchase price of an asset for inflation over time, thereby reducing the taxable gains.

However, the existing equity LTCG framework does not provide this adjustment, which has raised concerns among investors. The government’s contemplation of a review stems from a series of meetings held with industry stakeholders, including representatives from the Securities and Exchange Board of India (SEBI), the Central Board of Direct Taxes (CBDT), banks, and other relevant parties.

These discussions have focused on the LTCG framework and its implications for capital outflows from the Indian market. A government official indicated that a decision regarding the restructuring of the tax could be made in the near future. A senior banking official involved in the discussions noted that there is an acknowledgment within the government of the need to reassess the tax structure.

This reassessment aims to enhance the competitiveness of Indian equities and make them more appealing to foreign investors. The government is currently reviewing various proposals related to LTCG as part of this effort.

Impact of FPI Outflows

The review of the LTCG tax comes at a time when there has been a notable increase in foreign portfolio investor (FPI) outflows from Indian equities. According to data from Central Depository Services Ltd (CDSL), cumulative FPI outflows from equities have reached Rs 3.1 lakh crore in 2026 thus far. This figure significantly surpasses the Rs 1.7 lakh crore withdrawn during the entirety of 2025.

The government is exploring whether modifications to the tax framework could help make Indian equities more competitive for foreign investors. On October 13, Finance Minister Nirmala Sitharaman expressed the government’s interest in gathering opinions regarding the potential removal of the LTCG tax.

However, as of now, no definitive decision has been announced regarding the restructuring of the tax. An email sent to the Finance Ministry seeking clarification had not received a response at the time of publication, and updates will be provided if a response is received.

The discussions surrounding the LTCG tax reflect broader concerns regarding the attractiveness of Indian equities in the global market. Stakeholders are keenly observing the government’s next steps, as any changes could significantly influence investment patterns and the overall economic landscape in India.

Long or Short, get news the way you like. No ads. No redirections. Download Newspin and Stay Alert, The CSR Journal Mobile app, for fast, crisp, clean updates!

App Store – https://apps.apple.com/in/app/newspin/id6746449540

Google Play Store – https://play.google.com/store/apps/details?id=com.inventifweb.newspin&pcampaignid=web_share