No proposal to scrap LTCG tax, government informs Parliament

The Centre confirmed to Parliament it has no plans to scrap the Long Term Capital Gains (LTCG) tax on equities. Tax collection from the levy rose to Rs 1.29 lakh crore in AY 2025-26. The tax rate for FPIs on equities remains the same as for domestic investors.

The government has no proposal to scrap the Long Term Capital Gains (LTCG) tax on equity investments, the Centre informed Parliament on Monday, while disclosing that it collected Rs 1.29 lakh crore from the levy in Assessment Year (AY) 2025-26, up from Rs 72,249 crore in the previous assessment year.

LTCG Tax Collections See Significant Rise

In a written reply to an unstarred question in the Lok Sabha, Minister of State for Finance Pankaj Chaudhary said revenue generated from LTCG tax on equity transactions stood at Rs 72,249 crore in AY 2024-25 (relevant to FY 2023-24) and Rs 1,29,158 crore in AY 2025-26 (relevant to FY 2024-25). The reply added that data for subsequent assessment years is not yet available because income tax returns have not been filed.

No Preferential Treatment for FPIs on Equity

Responding to concerns over whether Foreign Portfolio Investors (FPIs) had been given preferential treatment, the government said, "The tax rate of 12.5% on LTCG for domestic and retail investors is the same for FPIs for investments in equity." It clarified that the recent tax exemption for FPIs applies only to investments in Government Securities (G-Secs) and not to equity investments. In simple terms, foreign investors continue to pay the same LTCG tax as domestic investors on gains from equities, while only their investments in government bonds have been granted tax exemption.

Rationale for G-Sec Exemption

Explaining the rationale behind the exemption on government securities, the government said it was introduced "recognising the importance of a competitive tax regime in attracting global capital." It added that the move aims to align India's taxation of government securities with several comparable jurisdictions and help attract "stable systematic inflow of durable, patient foreign capital" from long-term investors such as pension funds, insurance companies and sovereign wealth funds.

No Plans to Abolish LTCG Tax for Retail Investors

On whether it plans to abolish LTCG tax for retail investors, the government said, "At present, there is no such proposal under consideration." It further noted that "The tax policies, including capital gains tax rates, are reviewed periodically as part of the annual budgetary process and legislative revisions after taking into considerations the macro-economic parameters."

In other words, while capital gains tax rates are reviewed from time to time, there is currently no decision to withdraw the levy on equity investments.

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