Union Minister of State for Finance Pankaj Chaudhary on Monday, July 20, 2026, definitively stated that there is no move at the moment to abolish the long-term capital gains (LTCG) tax on equity transactions for retail and domestic investors. According to reports from The Times of India, The Economic Times, Business Standard, The Hindu BusinessLine, and Zee News, Chaudhary made this statement in a written response to a query in the Lok Sabha regarding the timeline for scrapping LTCG for retail/domestic investors to revive market sentiment and ensure a level playing field between foreign and Indian investors. The government's clarification comes as the last date for filing income tax returns approaches on July 31, 2026, just a week away, underscoring the need for investors to understand capital gains taxation rules. As per the latest reports, the Finance Ministry has now provided additional clarity that there is currently no proposal to change capital gains tax rates at present, providing much-needed certainty to market participants. In a written reply to the Lok Sabha, the minister further stated that tax policies, including capital gains tax rates, are revised periodically as part of the annual budgetary process and legislative revisions, after taking macroeconomic parameters into account. The minister's statement will put an end to speculation, at least till the budget exercise begins in December.
The Government's LTCG collections experienced a dramatic 79% increase between assessment years 2024-25 and 2025-26. As reported by The Economic Times, Business Standard, The Hindu BusinessLine, and Zee News, LTCG collections in AY 2024-25 were ₹72,249 crore, which jumped to ₹1,29,158 crore in AY 2025-26. The minister noted that ITRs for AY 2026-27 and 2027-28 are yet to be filed, making data for these assessment years unavailable. The government revealed that this sharp increase in revenue reflects higher market activity and increased tax collections, demonstrating the growing participation in equity markets and the effectiveness of the current tax framework. During FY 2023-24 and FY 2024-25, the government collected around ₹2.01 trillion in LTCG tax on equity transactions, with collections rising by nearly 79% over the period. The LTCG tax on listed equities and equity mutual funds has been fixed at 12.5%, which is applicable only on gains exceeding ₹1.25 lakh per financial year, with an asset considered a long-term capital asset if held for more than 12 months.
For equity shares and all equity-oriented mutual funds, the holding period determines whether gains are classified as long-term or short-term. According to Mint, if investments are held for up to 12 months, gains are treated as short-term capital gains (STCG) with a tax rate of 20% plus applicable surcharges and cesses. For holdings exceeding 12 months, gains qualify as long-term capital gains (LTCG) with a tax rate of 12.5%. The exemption limit of ₹1.25 lakh per financial year applies to the total eligible LTCG earned by an individual during the year, rather than to each investment separately. The tax structure provides a lower tax rate for long-term holdings and offers significant tax savings for investors who maintain their positions beyond the one-year threshold. For SIPs, each instalment is treated as a separate investment with its own purchase date and holding period, while mutual funds generally use the First-In, First-Out (FIFO) method for redemptions, meaning a single withdrawal may include both short- and long-term gains.
Despite the government's stance on domestic LTCG tax, it has recently provided tax relief to foreign portfolio investors in government securities. According to The Hindu BusinessLine and Zee News, the Finance Ministry exempted FPIs from LTCG tax on investments in government securities, effective April 1, 2026, to support the rupee and revive overseas flows. However, FPIs have sold about $28.03 billion worth of Indian equities so far in 2026, with elevated crude prices and the rupee's slide to record lows weighing on sentiment. The trend has shown improvement in July, with overseas investors buying $1.25 billion of shares so far this month. As per Zee News, Minister Chaudhary clarified that the recent tax rationalisation applies only to FPI investments in government securities, with the exemption aimed at aligning India's taxation of government securities with comparable jurisdictions and attracting stable, long-term foreign capital from pension funds, insurers and sovereign wealth funds. The minister stated that the 12.5% LTCG tax rate on equity investments is the same for FPIs, domestic investors and retail investors, with the government maintaining that there are no current proposals for changes to the existing framework. The Centre had undertaken an overhaul of the capital gains structure in the last few years, bringing all asset classes on a par, while overseas investors have been demanding changes to the structure for equities, arguing that the government is imposing long-term capital gains tax as well as securities transaction tax, making India uncompetitive compared with several other markets.
The Finance Ministry's stance comes amid broader discussions about capital gains taxation reforms. According to The Hindu BusinessLine, Finance Minister Nirmala Sitharaman had said in May this year that the government is willing to listen to concerns raised by stock market investors regarding the tax system, including issues related to LTCG and short term capital gains (STCG) tax. "On this specific issue, and on any issue, we are always ready and willing to listen to the people," Sitharaman said when asked about requests from stock market participants to review long-term and short-term capital gains taxation. "We will definitely take their inputs," she added, indicating the government's openness to feedback on tax policy reforms. Currently, LTCG on equities is levied at 12.5% for both domestic and foreign investors, with long-term capital gains applying to profits made from selling equities after holding them for at least 12 months. Taxes directly affect investor returns and shape the outlook of both domestic and foreign investors in India's equity markets, making it crucial for investors to understand the current tax structure and its implications for their investment decisions.
