Tax on capital gains is fast becoming a major source of revenue for the government, with the rising volume of equity transactions and surge in retail participation in the capital market. Revenue from the long-term capital gains (LTCG) tax moved to a high-growth trajectory after it was reintroduced for equities in 2018, and accelerated further after the LTCG on equities was raised to 12.5% from 10% in Budget FY25.
The government collected Rs 1.29 lakh crore from LTCG tax on equity transactions for financial year 2024-25 (assessment year 2025-26), up 79% from a year ago, the government told Parliament on Monday.
This means tax collections from LTCG on equity are one of the largest contributors to the growth in direct tax collections, growing much faster than the revenue from taxes on personal income or corporate profits, which are conventionally among the largest sources of tax receipts.
In a written reply to the Lok Sabha, Minister of State for Finance Pankaj Chaudhary said on Monday that there is no proposal currently under consideration to scrap LTCG tax on equity investments.
Overall, personal income tax (PIT) and corporate tax collections grew at a much slower pace in FY25. PIT collections rose 18% to Rs 12.35 lakh crore in FY25, while corporate tax collections increased 8% to Rs 9.9 lakh crore.
“The increase in the LTCG rate from 10% to 12.5% from July 2024 would have contributed to higher collections. However, a near 79% increase in revenue cannot be attributed to the rate change alone,” said Richa Sawhney, tax partner, Grant Thornton Bharat. “The primary drivers likely were the strong performance of Indian equity markets over FY24 and FY25, record retail participation, and significant profit-booking by investors, which expanded the pool of taxable gains.”
According to Hitesh Sawhney, partner, Price Waterhouse & Co (PwC), the revised classification of long-term capital assets based on holding periods for transfers on or after July 23, 2024, also helped this rise in tax collections. The Budget FY25 increased the LTCG on equities to 12.5% from 10%, and raised exemption threshold to Rs 1.2 lakh from Rs 1 lakh.
It also raised the tax on short-term gains from equity investments to 20% from 15%. At that time, the then finance secretary TV Somanathan had said correcting the rates of capital gains tax was a “necessity in terms of equitable collection of taxes.”
While data for LTCG on equity investments for FY26 is not yet available, PwC’s Sawhney expects these collections to remain robust, “sustaining the momentum witnessed in the previous fiscal year.”
“Heightened geopolitical tensions and persistent global economic uncertainty are expected to encourage investors to lock in gains and recalibrate their portfolios, thereby crystallising a larger quantum of taxable long-term capital gains,” the PwC partner said.
Earlier this year, the government also removed the LTCG on investments by foreign portfolio investors (FPIs) in government securities starting April 1, to attract global capital.
“The measure is aimed at improving India’s attractiveness as a destination for long-term foreign investment in government securities. While there may be some revenue forgone, the overall impact on direct tax collections is expected to be limited. However, here again government data is not yet available,” Grant Thornton’s Sawhney said.
Portfolio investors have sold over $28 billion worth of Indian equities so far in 2026.
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