LTCG tax rollback: What investors want from Budget 2027 and will the government deliver?

Rollback of LTCG tax on equities

One of the key demands is to reduce the 12.5% LTCG tax on eligible equity gains or restore the earlier rate of 10%. SBI Research has also recommended abolishing LTCG tax on equities, arguing that the move could encourage long-term investment in Indian markets and support domestic capital formation.

Under the current rules, eligible long-term gains from listed Indian equity shares and equity-oriented mutual funds are taxed at 12.5% on aggregate gains exceeding ₹1.25 lakh in a financial year, subject to applicable conditions.

The rate was increased from 10% to 12.5% in the July 2024 Budget, while the annual exemption was raised from ₹1 lakh to ₹1.25 lakh. The short-term capital gains tax rate on eligible equity investments was also increased from 15% to 20%.

Supporters of a rollback argue that lower taxes could improve post-tax returns and encourage investors to remain invested for longer periods. However, any reduction would also have to be assessed against the government's revenue requirements.

Demand for lower STT

Another area of concern is securities transaction tax. Market participants have called for a reduction or removal of STT, particularly after the increase in the levy on certain derivatives transactions in Budget 2026.

STT and LTCG tax are separate levies. STT applies to specified securities transactions, while LTCG tax is charged on eligible profits when an asset is sold. A reduction in one would not automatically lead to a change in the other.

Investors and traders are therefore seeking clarity on whether the government will consider changes to transaction costs alongside capital gains taxation.

Calls for greater consistency across asset classes

Investors have also raised concerns about differences in the tax treatment of Indian equities, foreign stocks, gold, property and debt mutual funds.

For instance, eligible long-term gains from Indian listed equities qualify for an annual exemption of ₹1.25 lakh, while gains from US stocks and physical gold do not receive the same benefit. Specified debt mutual funds acquired on or after April 1, 2023, are taxed at the investor's applicable income tax slab rate, irrespective of the holding period.

The removal of indexation for most assets in July 2024 has also remained a concern, particularly for property owners who held assets for several years.

Will Budget 2027 bring relief?

The government will have to balance investors' demand for better post-tax returns against revenue considerations and the broader objectives of the tax system. It could revise rates, exemptions or holding-period rules, or retain the existing structure.

Until a formal announcement is made, investors should calculate their returns using the current tax provisions rather than assume that a rollback is forthcoming.