Millions of stock market investors hoping for the end of the long term capital gains (LTCG) tax on equity will have to wait, as the central government has firmly shut the door on that expectation for now. Speculation had been building for a while that the tax on equity profits might be scrapped, but the government has made it clear in Parliament that no such proposal is currently on the table. In plain terms, profits booked from holding shares over the long run will keep attracting tax exactly as before, and investors should not bank on any exemption.
The clarification came from Minister of State for Finance Pankaj Chaudhary in a written reply in the Lok Sabha. He revealed that the LTCG tax on equity alone brought the exchequer ₹1.29 lakh crore during assessment year 2025-26. The figure stands out because in the immediately preceding assessment year 2024-25, the same head had earned the government just ₹72,249 crore. That means collections from this tax roughly doubled in the span of a single year. The government also noted that data for the years ahead is not yet available, since income tax returns for those periods are still being filed.
One rule for foreign and domestic investors alike
The government also dispelled the notion that foreign portfolio investors (FPIs) enjoy any special break on equity. It clarified that, just like domestic and retail investors, foreign investors too must pay tax at 12.5 percent on long term capital gains earned from equity. There is one exception, though, foreign investors are given a tax exemption only on money parked in government bonds. The purpose behind that carve-out is straightforward, to draw large foreign players such as pension funds, insurance companies and sovereign wealth funds towards India and boost the flow of long term capital into the country.
Tax policy is reviewed every year
The finance ministry also offered the assurance that all tax policies, including the capital gains tax, are reviewed from time to time. Any change in these rates is usually decided during the budget, weighing the country's economic conditions against the government's revenue needs. As things stand, however, no decision has been taken to remove the LTCG tax levied on equity.
What it means for investors
The government's stance makes it plain that those investing in the stock market for the long haul should not expect any tax relief in the near future. This makes it all the more important for investors to factor these tax rules in while building their strategy and to calculate their returns accordingly. It is possible that the government may revisit these rules during a future budget or a new tax regime, but until that happens the current system will remain unchanged and tax will have to be paid on the same basis.
