Industry seeks reduction in LTCG and STT taxes in Budget 2027

Various industry bodies have recommended to the Ministry of Finance that the rates of Long-Term Capital Gains (LTCG) tax on equity be rationalised and the Securities Transaction Tax (STT) be reduced in the upcoming Budget 2027. According to a report by The Hindu, pre-budget consultation meetings were held by officials, including Finance Minister Nirmala Sitharaman and Revenue Secretary Arvind Srivastava. During these meetings, consultations were held with organisations such as the Confederation of Indian Industry (CII), Federation of Indian Chambers of Commerce and Industry (FICCI), PHD Chamber of Commerce and Industry (PHDCCI), and Associated Chambers of Commerce and Industry (ASSOCHAM).

Among the primary demands made by the industry is the rationalisation of LTCG on equity. Currently, foreign and domestic investors must pay a tax of 12.5% on profits exceeding ₹1.25 lakh annually on listed shares. In Budget 2026, the Central Government had removed the 12.5% LTCG tax for Foreign Portfolio Investors (FPIs) in the government securities market, alongside improvements under the Fully Accessible Route (FAR).

Rakesh Nangia, Chairman of ASSOCHAM's International Tax Task Force, stated, “Removing the LTCG levy will increase post-tax returns and reduce the gap with Korea, Taiwan, and Brazil.” He cited that following the G-sec relief in the debt market, FPI inflows increased to approximately $9 billion in June-July. On the other hand, PHDCCI has demanded the complete abolition of LTCG tax on equity investments, a reduction in the Short-Term Capital Gains (STCG) tax rate from 20% to 10%, and a decrease in STT rates to encourage long-term investment and improve the competitiveness of India's capital market.

In a representation sent to Nirmala Sitharaman, FICCI pointed out that foreign portfolio investors have withdrawn approximately ₹3.08 lakh crore during the year. According to FICCI, the capital gains tax levied in addition to STT reduces returns on equity, making a review necessary to make India more attractive for investment.

However, some market experts believe that the revenue loss resulting from the removal of LTCG could be offset by increasing STT. According to SBI Research estimates, the removal of LTCG could lead to a revenue loss of ₹40,000-50,000 crore for the financial year 28.

The calculation of tax for FPIs is also a major issue. Under the Income-tax Act, LTCG is calculated in Indian Rupees. Due to the depreciation of the Rupee against the investor's base currency, investors are forced to pay tax even when returns in terms of dollars are zero or negative. This issue is currently under examination.

V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, cautioned that abolishing LTCG only for FPIs would be discriminatory towards local retail and direct equity investors, who pay a 12.5% tax. He demanded that tax relief should be uniform for all to provide a level playing field.

Experts suggest that amendments to tax laws alone are not sufficient to increase investment; growth in corporate earnings, policy certainty, and a stable Rupee are also essential. Rakesh Nangia added that simplifying the onboarding process, establishing a predictable tax clearance process at the time of exit, and ensuring swift and binding resolution of disputes would attract stable long-term investments.