Government may revise tax rules; investors could get major relief

New Delhi (The Uttam Hindu): Investors in the stock market may see significant changes to the long-term capital gains (LTCG) tax in the coming days. The central government is reviewing the existing tax structure applicable to equity investments. According to media reports, the government may take a decision on the matter in the coming weeks. However, no official announcement has been made regarding a reduction in the tax rate, changes to the rules or the complete abolition of the tax.

Focus on attracting foreign investors

The continued withdrawal of foreign investors from the Indian stock market has become a concern for the government. Against this backdrop, the government is assessing whether changes to LTCG tax rules could make Indian markets more attractive to foreign investors. According to reports, India’s tax system is being compared with those of major global economies to understand how taxes on stock market profits affect foreign investment.

How much LTCG tax is currently levied?

Under the current rules, eligible long-term capital gains from the sale of listed equity shares and units of equity-oriented mutual funds that meet the prescribed conditions are taxed at 12.5% if held for more than one year. A total of up to ₹1.25 lakh in eligible gains in a financial year is exempt from tax. Gains exceeding this limit are taxed according to the applicable rules.

The LTCG tax rules for unlisted shares may differ. Generally, the annual exemption of ₹1.25 lakh available for eligible listed equity investments does not apply to unlisted shares in the same manner. The applicable tax rate and calculation depend on the relevant provisions.

Government holds discussions with market stakeholders

According to reports, the government has held discussions on the issue with various market stakeholders. These reportedly include industry representatives, the Securities and Exchange Board of India (SEBI), the Central Board of Direct Taxes (CBDT), banks and other relevant parties.

The discussions aim to assess the impact of the existing tax structure and determine whether potential changes could improve the competitiveness of Indian markets and attract more foreign investment. However, no proposal has yet been confirmed as having received final approval.

Foreign investors withdrew ₹3.1 lakh crore in 2026

The withdrawal of foreign portfolio investors (FPIs) is also among the key reasons behind these discussions. According to figures cited in the report, foreign investors have withdrawn around ₹3.1 lakh crore from the Indian stock market so far in 2026. This is reportedly higher than the approximately ₹1.7 lakh crore withdrawn during the whole of 2025.

Foreign investors’ decisions are influenced not only by taxes but also by the rupee’s exchange rate, global economic conditions, interest rates and the valuations of Indian stocks. The government is therefore trying to assess how far potential tax changes could help strengthen investor confidence.

Could the LTCG tax be abolished?

Reports have also suggested that the possibility of completely abolishing the LTCG tax is being discussed. According to the report, Finance Minister Nirmala Sitharaman had said on October 13 that she was willing to consider the issue and hear suggestions. However, being open to discussions does not mean that the government has decided to abolish the tax.

For now, possible options reportedly include reducing the tax rate, modifying the existing rules and considering other alternatives. The final decision and the timeline for implementing any changes remain unclear.

What are the rules in other countries?

India’s tax system is also being compared with those of countries such as the United States, the United Kingdom, Singapore, Hong Kong, the United Arab Emirates, Japan, Canada and China. These countries have different rules for taxing profits from share investments. Exemptions are available in certain circumstances, while taxation in many cases depends on the holding period, investor category and local laws.

The government faces the challenge of developing a tax framework that encourages foreign investment in Indian markets while also protecting the interests of domestic investors. The final position on any changes to the LTCG tax will become clear only after an official government decision.