LTCG Tax On Shares To Be Scrapped? What FM Nirmala Sitharaman’s Remarks Mean For Stock Market Investors

Long-term capital gains (LTCG) tax on shares could come up for reconsideration as the Centre examines review proposals following Finance Minister Nirmala Sitharaman’s comments on equity taxation. However, no decision to scrap or reduce the levy has been announced. Eligible long-term gains above ₹1.25 lakh in a financial year continue to attract 12.5% tax, excluding applicable cess and surcharge.

The developments helped lift market sentiment on Tuesday, October 13, when the Sensex gained 1,109.10 points, or 1.54%, to close at 73,033.78. The Nifty 50 rose 358.60 points, or 1.60%, to settle at 22,721.95. Gains in IT, financial and FMCG shares and a recovery in the rupee also supported the rally.

As markets head into Wednesday’s session, investors have a fresh policy development to track: the government is examining equity-tax proposals, but the outcome remains open ahead of Union Budget 2027-28.

Will LTCG Tax On Shares Be Removed?

Speaking at the Bloomberg New Economy Forum in New Delhi on Tuesday, Sitharaman said investors in India and overseas had raised questions about LTCG tax, securities transaction tax (STT) and the taxation of different asset classes.

She described the discussion as healthy and said she was keen to hear stakeholders’ views. With Budget preparations already under way, however, she declined to indicate which tax changes the government might consider.

Separately, a senior government official told Moneycontrol on October 13 that the Centre had received proposals seeking a review of LTCG tax on equities and was examining them. This takes the debate beyond investor demands, although a review does not mean that tax relief has been approved.

SBI Research has proposed scrapping LTCG tax on equities while increasing the qualifying holding period to two or three years. Its recommendations aim to encourage longer-term investments and attract more stable capital flows into Indian markets.

The proposal would change both the tax on equity gains and the time investors must hold shares to qualify for long-term treatment. Neither change has been announced, and Sitharaman’s comments did not provide an assurance that the levy would be removed.

What Is The Current LTCG Tax On Shares?

Listed equity shares, equity-oriented mutual funds and eligible domestic equity ETFs qualify for long-term capital gains treatment when held for more than 12 months. Aggregate eligible long-term gains exceeding ₹1.25 lakh in a financial year are taxed at 12.5%, with applicable cess and surcharge additional.

The ₹1.25 lakh exemption applies to combined eligible long-term gains for the year. It is not available separately for each stock, mutual fund or sale transaction. The tax applies to profits above the exemption limit, rather than the entire amount received from selling an investment.

Eligible equity investments held for 12 months or less attract short-term capital gains tax at 20%, excluding applicable cess and surcharge.

STT is a separate levy on specified securities transactions and cannot be deducted when calculating taxable capital gains. Its treatment is also part of the broader debate over the cost of investing and trading in Indian equities.

Following Tuesday’s rally, investors will watch whether the government’s examination leads to a specific proposal on the LTCG rate, exemption threshold or holding period. Until an official change is announced, the existing rules continue to apply.

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