Finance Minister Nirmala Sitharaman left open the possibility of changes to equity taxes on October 13, 2026, but declined to identify any measures under consideration as preparations for India’s next budget got underway.
Background: Sitharaman Says Government Will Hear Long-Term Capital Gains Tax Proposals Ahead of Union Budget
Speaking at the Bloomberg New Economy Forum in New Delhi, Sitharaman said investors in India and abroad had raised the tax treatment of equity gains and the securities transaction tax, or STT. She also pointed to questions about whether different asset classes should face similar treatment.
“The debate on tax in the market, debate on STT, and also the question of treating all asset classes similarly, has been a very well-discussed topic,” she said.
Equity investors face no announced change to the existing rules
People investing in listed shares and equity mutual funds still face the existing tax framework. Sitharaman announced no rate change, and the government has not proposed abolishing the tax on equity gains.
The government reviews tax rates through its annual budget process. Budget 2026 kept the capital-gains framework in place, although it raised STT on futures and options trades.
The current tax rules combine gains taxes with a charge on trades
The current long-term capital gains rate for listed equity shares and equity mutual funds is 12.5% when investors hold them for more than 12 months. An investor’s gains up to ₹1.25 lakh a year are exempt.
Section 112A of the Income Tax Act applies when STT has been paid on both the purchase and sale of listed shares. Gains above the exemption also face applicable surcharge and cess. Investors cannot claim Chapter VI-A deductions against those gains, and the law calculates them without indexation.
A BSE corporate filing explains a separate rule for shares acquired on or before January 31, 2018. Their acquisition cost is the higher of the actual cost and the lower of the share’s fair market value on that date or its eventual sale price. The rule preserves the value of gains accrued up to that date.
Shares held for 12 months or less count as short-term assets. Section 111A taxes those gains at 20.00%, before applicable surcharge and cess. STT, meanwhile, applies to a trade whether or not it makes a profit; rates vary from 0.05 percent to 0.15 percent based on the type of transaction.
Analysts split between cutting gains taxes and easing the charge on trades
SBI Research has urged the government to remove the gains tax on equities and lengthen holding periods to two or three years. Its proposal aims to draw foreign investment amid market outflows and pressure on the rupee.
Shankar Sharma, founder of GQuant Investech, expects no full removal but said a lower rate for overseas investors was possible. He argued for different treatment of foreign and domestic investors, saying India needs overseas capital to fund current-account deficits.
Rohit Srivastava, founder and market strategist at Indiacharts.com, said the minister had opened a discussion, not announced an abolition plan. He proposed cutting the rate in stages, first to 5% and eventually to zero. If the tax disappeared, he said, the change should cover domestic and foreign investors alike.
Punit Shah, a partner at Dhruva Advisors, said foreign portfolio investors would welcome a reduction. He also emphasized predictable tax and regulatory policy, warning that frequent changes could weaken overseas investors’ confidence in India’s long-term prospects.
Puneet Singhania, a director at Master Capital Services, said the combined burden includes a levy on each trade and taxes on short-term gains. He pointed to Hong Kong and Singapore as markets that attract capital without taxing gains.
Other researchers have argued for narrower changes. Madhavi Arora of Emkay Global, in an October 23 note, backed a measured STT reduction, especially for cash-market transactions, as a way to lower trading friction and improve liquidity without reopening the wider capital-gains framework.
Bernstein’s October 19 note argued that a cut to the gains tax alone would not bring foreign investors back. It lowered its Nifty target to 25,000 and said a sharp rally after a tax cut could give investors a chance to sell holdings.
Aditya Agarwala, CIO and co-founder of InvestValue Capital, said tax was not the main reason foreign investors had withdrawn more than ₹3 lakh crore that year. He cited US 10-year yields above 5%, a weaker rupee and high valuations as bigger forces, while saying tax costs could influence which markets global investors keep on their lists.
The tax debate follows years of levy changes and heavy foreign outflows
India introduced STT in October 2004 as it exempted gains on shares held for more than a year. That exemption lasted 14 years. In 2018, the government brought back a tax on long-term gains above ₹1 lakh a year, while protecting gains accumulated through January 31, 2018. STT remained in place, leaving investors subject to both charges.
Foreign selling has added urgency to the discussion. NSDL data put net withdrawals from Indian equities at a record ₹3.06 lakh crore in calendar 2026 through October 13. Another tally showed net equity withdrawals of $28 billion between January and September, while debt attracted about $8.3 billion in net inflows.
In July 2026, Union minister Pankaj Chaudhary told the Lok Sabha that the government was not considering scrapping the tax for domestic or retail investors. The finance ministry has said rates and other tax policies are reassessed during annual budget preparations and through legislative changes, taking prevailing economic conditions into account.
Budget consultations will test which proposals survive fiscal review
The debate now turns to the consultations ahead of the budget. The finance ministry holds separate meetings with economists, industry representatives, agriculturists, MSME leaders, bank chiefs and financial-sector executives.
Officials compile the proposals and assess their budgetary impact before deciding which to discard and which to shortlist. The Union Budget 2027-28 is due on February 1.
