Although Union Finance Minister Nirmala Sitharaman offered no clear indication of possible changes to the long-term capital gains (LTCG) tax or securities transaction tax (STT), her remarks were enough to trigger speculation, fuel debate, and prompt calculations of the potential impact of scrapping these taxes on government revenue.
As ANI reported, Sitharaman responded to a question at the Bloomberg New Economy Forum 2026 on Tuesday about LTCG and STT, saying that while the government is open to hearing views, it is premature to comment on possible measures at this juncture, as preparations for the Union Budget 2027 have already begun.
Experts and investors have been advocating for the removal of LTCG ever since it was reintroduced in 2018. However, at the current juncture, the government appears unwilling to make any changes to it.
Earlier in July this year, Union minister Pankaj Chaudhary told the Lok Sabha that the government was not considering any proposal to scrap LTCG tax for domestic or retail investors.
In 2024, the government increased the LTCG tax rate on listed equities and equity mutual funds to 12.5% from 10%, while also raising the exemption threshold from ₹1,00,000 to ₹1,25,000 per financial year.
STT, or Securities Transaction Tax, which is charged at the time of executing a transaction of equities and derivatives, was introduced in India in October 2004.
While LTCG tax impacts long-term investors, STT impacts intraday, short-term, and derivatives traders, as it applies to every trade.
A tweak or removal altogether-what’s feasible?
Mint spoke to ace investors and market veterans Shankar Sharma and Rohit Srivastava to get their insights on these taxes. Here’s what they said:
Shankar Sharma, the founder of GQuant Investech- an AI firm
I don’t think the Finance Minister will remove the capital gains tax, but she might reduce it for overseas investors.
Long-term capital gains tax is the pimple, not the tumour.
The real reason for the underperformance of the Indian market has been companies which are inward-focused and have no technology. If the market had large stocks which were delivering 50% returns, do you think anybody would have minded paying capital gains tax?
In any case, I have always argued that foreign investors should have low or no tax on equity investment, and domestic investors should have a tax simply because India needs foreign capital permanently in order to fund current account deficits, which it has always run.
It is time to have differential taxation back because this is exactly what used to happen in the 90s, and it is very logical.
We need to give incentives to dollar capital to come to India, and tax is of course a very critical component.
Rohit Srivastava, the founder and market strategist at Indiacharts.com
The Finance Minister said that the government is open to discussion. She has not indicated that the government intends to abolish the tax, although that is what many market participants are hoping for.
If the government is concerned about the revenue implications or the potential market impact, it could reduce the tax in stages – for example, from 12.5% to 5%, and eventually to zero. Several countries have lower capital gains tax rates, including rates of around 5%. A phased reduction could be an alternative for the government to consider.
The tax factor is very important for foreign investors. They may be comfortable with the investment strategy and the overall proposition, but an unfavourable tax structure can ultimately make them walk away.
If the government does away with the tax, I believe the move should apply to both domestic and foreign investors. When LTCG tax was introduced, the underlying idea was to create a level playing field, with both domestic investors and foreign institutional investors (FIIs) subject to the same tax.
This is something we often overlook. We tend to focus only on foreign investors, but changes in taxation can have a significant impact on domestic investors as well. If the government abolishes LTCG tax for both categories of investors, it would be a double win. Domestic investors would also have a greater incentive to invest for the long term without worrying about capital gains tax.
One concern some market participants have raised is that removing the tax for foreign investors could encourage them to book profits and exit the market. However, I am not convinced that this would necessarily happen. If foreign investors believed that the Indian market was a poor investment and that they stood to lose more than the applicable tax rate, they would sell their holdings anyway.
LTCG tax has been a contentious issue that has discouraged some foreign investors from investing in India. If the government resolves this issue, it could significantly improve sentiment towards foreign institutional investor flows, which have been a concern for the market for a long time.
Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
