New Delhi [India], October 27 : The government is considering restructuring the long-term capital gains (LTCG) tax on equities, including a possible reduction from the current 12.5 per cent, to revive stock market sentiment amid weak market returns and concerns over foreign portfolio investor (FPI) outflows, as part of discussions ahead of the Union Budget 2027-28, according to sources.
The proposals under consideration would apply to both domestic and foreign investors, with officials also examining a plan to allow foreign investors to calculate capital gains in dollar terms rather than rupee terms for taxation purposes, a move aimed at improving market sentiment.
The proposed reduction is being considered against the backdrop of weak or negative market returns over the past two years, sluggish wage growth and rising retail investor participation.
Concerns have also emerged over whether domestic mutual fund inflows can continue to offset large-scale FPI outflows, further strengthening the case for tax relief to restore investor confidence.
Sources privy to the matter, including a government official, told ANI that a final decision on the proposed restructuring could be taken following consultations with stakeholders.
"The government is examining the LTCG rate with what is applicable in major economies," sources said, adding that discussions with stakeholders are underway.
The proposed changes come against the backdrop of several revisions to the taxation of equity investments and dividend income over the past eight years.
In 2018, the government reintroduced LTCG tax on listed equities at 10 per cent on annual gains exceeding Rs 1 lakh, ending the earlier exemption available to long-term equity investors.
In 2020, the government abolished the Dividend Distribution Tax (DDT) regime and shifted the tax liability on dividend income to shareholders, making dividends taxable in the hands of investors at applicable income tax rates.
Subsequently, in the Union Budget 2024-25, the government increased the short-term capital gains (STCG) tax on specified equity investments from 15 per cent to 20 per cent.
The same Budget also raised the LTCG tax rate on equities from 10 per cent to 12.5 per cent, while increasing the annual exemption threshold from Rs 1 lakh to Rs 1.25 lakh.
At present, LTCG on listed equity shares is taxed at 12.5 per cent without indexation benefits, with the tax applying to annual gains exceeding Rs 1.25 lakh, subject to applicable conditions.
Earlier, on October 13, Finance Minister Nirmala Sitharaman had indicated that the government was open to hearing stakeholders' views on the removal of LTCG tax.
The ongoing discussions ahead of Budget 2027-28 could therefore mark another significant review of India's equity taxation framework, although no final decision has been announced.