Taxpayers Alert: Should LTCG Tax Be Abolished? What Are Long Term Capital Gains & How They Impact Stocks?

The Indian stock market has witnessed significant outflow from foreign investors over the past few years to reach at record high outflow of more than Rs 4 lakh crore in just 9 months of 2026, demanding a serious structural reform for increasing investor participation. SBI Research recommends the crucial need for the abolishment of long-term capital gains (LTCG) taxes on Indian equities. It looks like Finance Minister Nirmala Sitharaman is likely to hear opinions related to LTCG.

Abolish LTCG?

During the Bloomberg New Economy Forum in New Delhi, Sitharaman called the discussions around securities transaction tax (STT) from Indian and foreign investors a positive debate. She said, "The long-term capital gains tax is something on which a lot of people have been commenting—both investors within India and also those who meet me occasionally outside."

The transaction tax on the securities market has been debated several times. Many suggested that both STT and LTCG are running parrel and there should be only one of them. Sitharaman added, "So, this debate on tax in the market --- the debate on the Securities Transaction Tax and also the question of treating all asset classes similarly-has been a very well-discussed topic."

As per reports, Sitharaman will likely hear views on removing LTCG during Budget 2027 consultation.

Sitharaman's statement comes after SBI Research warned about dire need for structural reforms for strengthening capital flows in the stock market. It pointed out at the outflow from foreign portfolio investors (FPIs) that breached Rs 3.51 lakh crore mark between 2021 to 2026. This year alone, FPIs have pulled over Rs 2.61 lakh crore in just 9 months, compared to Rs 1.66 lakh crore in 2025.

In SBI's view, the consistent outflow signals at weakening participation of investors and the requirement for policy intervention, which could make the Indian stock market attractive globally.

In its ECOWRAP report, SBI Research said, "The government must seriously look into anchoring hot money flows into the equity segment by extending the holding period to say 2-3 years and abolishing the long-term capital gains tax for equity." SBI believes the monetary and foreign exchange intervention from RBI to stabilise financial market is not enough, and structural measures from the government is needed.

It said, "Building substantially low taxation moats for such allocators, post a reasonable period say 3 years holding, can accentuate incremental flows as India Play remains structurally attractive and marquee/blue chip names locally promise lucrative returns in a competitive market."

As per SBI, Indian blue-chips and prominent listed companies offer potential for attractive future growth. It stressed upon that taxation-related incentives will boost the competitiveness of Indian equities and potentially result in incremental foreign inflows.

Foreign institutional investors (FIIs) have been net sellers of Indian stock market for six consecutive years since 2021. The outflow has reached the point where FIIs sold more than Rs 3 lakh crore each in 2024 and 2025 before crossing a new record outflow of Rs 4,44,545 crore in just 2026 so far, as per StockEdge data.

Year-to-date, Sensex has crashed 12,154.82 points or 14.27% to reach 73,033.78 as of October 13, 2026. Meanwhile, Nifty 50 plunged 3,424.60 points or 13.10% to hit 22,721.95.

What Is LTCG?

LTCG, which stands for long-term capital gains (LTCG), is a form of income tax that investors pay when selling their securities holdings. As per the Income Tax Department's definition, any capital asset held by the taxpayer for a period of more than 36 months immediately preceding the date of its transfer will be treated as a long-term capital asset. Gain arising on the transfer of a long-term capital asset is called a long-term capital gain. In this part you can gain knowledge about various provisions relating to the tax on long-term capital gains.

LTCG applies on equities, bonds, mutual funds, debt securities, gold, REITs, and commodities, among other market-related instruments. Also, LTCG is imposed on capital assets on any securities held by an FII that has invested in such securities in accordance with the SEBI Regulations. LTCG is also applied on real estate property.

LTCG Tax Exemptions:

As per the latest LTCG rule, equity shares and equity-oriented mutual funds held for more than 12 months qualify as long-term, and the first Rs 1.25 Lakh of such gains in a financial year is exempt from tax. Gains above that threshold are taxed at 12.5% under Section 112A (Section 198 under the renumbered Act), with no indexation benefit available. This exemption resets every financial year, which is why some investors deliberately stagger redemptions across two financial years to use the exemption twice, as per Shriram Finance's explainer.

Latest LTCG Tax Rates in India

Asset type	LTCG tax rate	Exemption / key rule
Listed shares (delivery-based)	12.5%	First ₹1.25 lakh of eligible annual gains exempt
Equity mutual funds	12.5%	First ₹1.25 lakh of eligible annual gains exempt
REITs / InvITs (eligible listed units)	Generally 12.5%	Depends on the applicable tax provision
Real estate (property)	Generally 12.5%	No indexation for the general rule; special option may apply to eligible older property
Gold and other taxable capital assets	Generally 12.5%	Holding period and asset classification matter
Unlisted shares	Generally 12.5%	Usually treated as long-term after more than 24 months

How To Calculate LTCG On Rs 2 Lakh Profits In A Financial Year?

EXAMPLE:

Calculation	Amount
Total eligible LTCG	₹2,00,000
Annual exemption	₹1,25,000
Taxable LTCG	₹75,000
Tax at 12.5%	₹9,375
Tax including 4% cess	₹9,750

If LTCG is abolished in the coming months, it will surely be good news for investors, as they will not have to pay 12.5% on their gains arising from market-related schemes.

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