The Indian Finance Ministry has unequivocally stated that it is not considering any proposals to abolish the long-term capital gains (LTCG) tax on equity investments for either domestic retail or institutional investors. This clarification, delivered in Parliament, effectively puts an end to ongoing speculation about potential tax relief in the current financial year.
The statement came in response to a question posed by Rajya Sabha MP Neeraj Shekhar on July 28, 2026. Shekhar had inquired whether the government intended to scrap the LTCG tax on equities during FY27 to bolster market sentiment, attract investments, and support economic growth. He also questioned if benefits extended to certain foreign investors could be made available to domestic counterparts.
No Proposal to Abolish LTCG Tax
Minister of State for Finance Pankaj Chaudhary, replying on behalf of the Finance Ministry, firmly stated, "There is no such proposal under consideration." He elaborated that tax policies, including capital gains tax rates, are subject to periodic review as part of the annual Union Budget process, taking into account various macroeconomic parameters. This indicates that any changes to the capital gains tax regime would be examined during the budget exercise, rather than through a mid-year policy decision.
Understanding LTCG Tax on Equities
Long-term capital gains (LTCG) tax applies to profits realized from selling equity shares held for over 12 months, provided Securities Transaction Tax (STT) has been paid on the transaction. Currently, LTCG on listed equity shares is taxed at a flat rate of 12.5%, inclusive of applicable surcharge and cess, on gains exceeding ₹1.25 lakh in a financial year. The initial ₹1.25 lakh of long-term capital gains remains exempt from tax.
- For unlisted shares, gains qualify as long-term after a holding period exceeding 24 months and are also taxed at 12.5%, though without an exemption threshold.
- The current tax structure applies to transactions executed on or after July 23, 2024. Earlier transactions are governed by the previous regime, which taxed LTCG on listed equities at 10% on gains exceeding ₹1 lakh.
The Income-tax Act does not permit indexation benefits for equity shares when calculating LTCG. Furthermore, shares acquired before February 1, 2018, remain protected under a grandfathering clause, safeguarding the acquisition cost up to the fair market value as of January 31, 2018.
Clarification on Tax Relief for Foreign Investors
Addressing MP Shekhar's query regarding tax relief for foreign investors, Chaudhary clarified that the government has not broadly abolished LTCG tax for them. Instead, the Income-tax (Amendment) Ordinance, 2026, rationalized the tax treatment specifically for Foreign Portfolio Investors (FPIs) investing in Government Securities (G-Secs).
Under this ordinance, FPIs are exempt from income tax on both interest income and capital gains derived from eligible Government Securities. This exemption took effect from April 1, 2026, applying only to interest or capital gains earned from such investments on or after that date.
Section 87A Rebate Still Excludes Capital Gains
The minister's response also touched upon the continued confusion surrounding the applicability of the Section 87A tax rebate on capital gains. As per changes announced in Budget 2025, taxpayers cannot claim the Section 87A rebate against income taxed at special rates, which includes both long-term capital gains (LTCG) and short-term capital gains (STCG).
While the Budget increased the rebate threshold under the new tax regime, this benefit remains exclusively available for income taxed at normal slab rates. Consequently, taxpayers liable to pay tax on equity gains cannot utilize the Section 87A rebate to reduce their LTCG or STCG tax liability.