The government told Parliament on Monday that it has no plans to scrap the Long Term Capital Gains (LTCG) tax on equity investments. The Centre also informed the Lok Sabha that collections from the levy surged to Rs 1.29 lakh crore in Assessment Year (AY) 2025-26, nearly double the Rs 72,249 crore mobilised a year earlier.
Minister of State for Finance Pankaj Chaudhary shared the figures in a written reply to an unstarred question in the lower house. LTCG tax revenue from equity transactions rose from Rs 72,249 crore in AY 2024-25 (FY 2023-24) to Rs 1,29,158 crore in AY 2025-26 (FY 2024-25). Data for later years is not yet available as returns for those periods have not been filed, the reply stated.
How does LTCG taxation work now?
When you sell listed shares or equity mutual funds after holding them for more than one year, the profit is treated as a long-term capital gain (LTCG). You do not pay tax on the first Rs 1.25 lakh of such gains in a financial year. Any gain above this limit is taxed at 12.5%.
Earlier, the exemption limit was Rs 1 lakh and the tax rate was 10%. These changes were announced in the July 2024 Union Budget and came into effect from July 23, 2024.
Before 2018, long-term capital gains on listed equities were fully exempt from tax. The government brought back the LTCG tax in the 2018 Budget by introducing a 10% tax on gains above Rs 1 lakh. Since then, the tax rules have been revised, with the latest changes taking effect in 2024.
Preferential tax treatment for FPIs?
The government’s response also addressed questions on whether Foreign Portfolio Investors (FPIs) get preferential tax treatment. It said, “The tax rate of 12.5% on LTCG for domestic and retail investors is the same for FPIs for investments in equity.”
The Centre clarified that a recent tax exemption for FPIs is limited to investments in Government Securities (G-Secs) and does not extend to equities.
On why the G-Secs exemption was introduced, the government said the idea came from “recognising the importance of a competitive tax regime in attracting global capital”. The move is meant to bring India’s taxation of government bonds in line with comparable markets and draw stable systematic inflow of durable, patient foreign capital from pension funds, insurance companies and sovereign wealth funds, it said.
Asked directly whether LTCG tax on retail equity investors could be scrapped, the government said, “At present, there is no such proposal under consideration.” It further noted that “The tax policies, including capital gains tax rates, are reviewed periodically as part of the annual budgetary process and legislative revisions after taking into consideration the macro-economic parameters.”
The disclosure comes amid periodic demands from market participants for a rollback or rationalisation of capital gains taxation.
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