Modi government won't scrap LTCG tax on equities anytime soon
What's the story
The Indian government has confirmed that it has no plans to scrap the long-term capital gains (LTCG) tax on equity transactions. The announcement was made by Minister of State for Finance Pankaj Chaudhary in a written reply in the Lok Sabha. He said, "There is no such proposal under consideration," while responding to a question about when the government would remove LTCG for retail and domestic investors.
Tax review
Tax policies are periodically reviewed: Chaudhary
Chaudhary further explained that tax policies, including capital gains rates, are periodically reviewed as part of the annual budget exercise and legislative changes.
He said these reviews are done after considering macroeconomic parameters.
This statement comes amid repeated demands from investors and market participants to roll back the LTCG tax. Some have argued that it discourages long-term investing and reduces post-tax returns on investments.
Revenue increase
Significant increase in LTCG tax collections
The government also highlighted a significant jump in LTCG tax collections from equity transactions.
The collections jumped nearly 78% year-on-year, from ₹72,249 crore in FY 2023-24 to ₹1,29,158 crore in FY 2024-25.
This sharp increase indicates the growing contribution of this levy to the government's revenue.
The current LTCG tax on listed shares and equity-oriented mutual funds is at a rate of 12.5%, applicable only on gains exceeding ₹1.25 lakh per financial year.
Tax defense
Expectations for reduction in rate or exemption limit
Despite the rising revenue from LTCG tax, some investors and market experts had hoped for a reduction in the rate or an increase in the exemption limit.
They believed this could encourage long-term investing and improve market sentiment.
However, the government's firm stance on retaining the LTCG tax has kept such expectations at bay.
Similar queries about scrapping this levy have been raised in Parliament before, but Finance Ministry has always maintained that there is no proposal to withdraw it.