Modi government might overhaul LTCG tax on equities soon
What's the story
The Indian government is likely to take a decision on restructuring the long-term capital gains (LTCG) tax on equities in the coming weeks, as per Moneycontrol. The move would impact both foreign and domestic investors. The LTCG tax currently stands at 12.5% without indexation benefits, applicable on gains exceeding ₹1.25 lakh per financial year for listed shares. Unlisted shares are not subject to this limit.
Consultation process
FM open to feedback on LTCG tax removal
Finance Minister Nirmala Sitharaman recently said the government is open to feedback on removing the LTCG tax.
The move comes as FPI outflows from Indian equities have hit ₹3.1 lakh crore in 2026, much higher than the ₹1.7 lakh crore withdrawn in all of 2025, according to data from Central Depository Services Ltd (CDSL).
Review process
Review includes comparison with major economies' LTCG rates
The government is reviewing the LTCG tax structure to make Indian equities more competitive and attractive for foreign investors.
The review also includes a comparison with major economies' LTCG rates.
Notably, several countries such as the US (subject to some conditions), UK, Singapore, Hong Kong, UAE, Japan, and Canada do not levy any capital gains tax on equities.
Taxation proposal
Proposal to calculate gains in dollar terms
The government is also considering whether LTCG paid by foreign investors should be calculated on gains made in dollar terms.
Currently, capital gains are calculated in rupee terms.
This proposal has been put forth by Trifecta Capital's co-founder Rahul Khanna, who suggested that India needs to rethink how it taxes foreign investors on their returns, especially when rupee depreciation impacts actual gains in dollar terms.