Ahead of the Union Budget 2026, experts and investors are hoping for major tax reforms, especially a more consistent capital gains tax structure. Currently, short-term capital gains (STCG) and long-term capital gains (LTCG) are taxed differently depending on the holding period. The tax rates also vary widely by asset class. Equities, such as stocks and mutual funds, are taxed under one system, while capital gains from gold and property come under different structures.
This can make investment planning and compliance more complicated for investors. As a result, there have been demands to introduce a more consistent taxation system and enhanced exemption limits for capital gains in the Union Budget 2026.
Understanding Capital Gains
Capital gains are the profits earned when an investor sells an asset for more than what they paid for it. This can include stocks, property or gold. Taxes are often levied on capital gains or the profit made on the asset, with rates depending on the holding period of a specific asset.
Also Read: ‘Equity Is All White, Real Estate Isnt’: Why Gurmeet Chadha Wants LTCG Tax Split
Current Taxes
If the asset is sold within a short period, it is treated as short-term capital gain (STCG). For equity shares and equity mutual funds, this period is up to 12 months.
For equity mutual funds and equity-oriented instruments, STCG is taxed at a flat 20% if held up to 12 months. For other assets, gains are added to income and taxed at the slab rate applicable. Here, the holding periods ranges from 12 to 24 months depending on the asset.
If the asset is held for a longer period, the gain is long-term capital gain (LTCG). For equity-related assets, this applies if the asset is held for 12 months. LTCG is usually taxed at a lower rate and, for some assets, offers indexation benefits to adjust for inflation.
For equities, LTCG stands at 12.5%. Investors also get an exemption of up to Rs 1.25 lakh per financial year on capital gains.
For gold, if sold within three years, STCG tax applies. If held for more than three years, LTCG is charged at 20%, including cess. Gold purchases also allow for indexation benefits.
How Expected Capital Gains Tax Exemptions Could Change Everything
One key expectation from the upcoming budget is increase in basic exemption limit for long-term capital gains on equities. Mutual funds industry body AMFI has proposed to increase the exemption limit for LTCG tax on equity and equity-oriented schemes to at least Rs 2 lakh.
The Association of Mutual Funds in India (AMFI) has also proposed a full exemption on long-term capital gains from equity mutual funds held for more than five years. AMFI has urged the government to restore long-term capital gains indexation for debt mutual funds. If implemented, this would mean lower taxable gains for investors, as inflation adjustments could reduce the tax burden.
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