BT Explainer: How securities tax policies like LTCG have evolved
Experts underline the need for a predictable tax regime; LTCG cut could only partly help boost foreign fund flows
- Nov 3, 2026,
- Updated Nov 3, 2026 12:42 PM IST
Finance Minister Nirmala Sitharaman’s recent comments that the government will review suggestions on long-term capital gains tax, on the backdrop of the outflow of foreign investments from Indian equity markets, has once again sparked expectations of some policy measures on the front.
But the tax treatment on equity transactions continues to be a precarious topic with several experiments and policy moves carried out over the course of several years. Experts underline that tax certainty and predictability continue to be key asks of investors.
“Each change may have an identifiable policy rationale. Viewed cumulatively, however, repeated movement in rates, holding periods, indexation and exemptions affects investment models and exit assumptions,” noted Rohinton Sidhwa, Partner, Deloitte India.
Naitik Doshi, Director- Financial Services, Nangia Global says ultimately, the objective should be to create a predictable and internationally competitive tax framework that attracts foreign capital without disadvantaging domestic investors. “The FM’s willingness to consider stakeholder concerns is encouraging. The real test will be how these competing considerations translate into policy action in the upcoming Budget,” he says.
LTCG over the years:
Over two decades ago in the Union Budget 2004-05, then-Finance Minister P. Chidambaram had announced abolishing the long-term capital gains tax (LTCG) on securities transactions and had replaced it with a securities transaction tax (STT) of 0.15% of the value of security. He had also reduced the short-term capital gains (STCG) from securities to a flat 10%. In Budget 2008-09, he then raised the STCG rate to 15% in-line with the rate of the dividend distribution tax and also introduced the commodities transaction tax like the STT on futures and options. In subsequent years, the STT rate was reduced to 0.1% and then further to 0.01%.
The next big change on long term capital gains tax came in the Union Budget 2018-19 when then finance minister Arun Jaitley brought back the tax on listed equities. Under the move, long term capital gains exceeding Rs 1 lakh was taxed at 10% without allowing the benefit of any indexation. However, all gains up to January 31, 2018 were to be grandfathered.
Finance Minister Nirmala Sitharaman then undertook a significant rationalisation of the LTCG regime in the Union Budget 2024-25. Sidhwa of Deloitte India noted that among other changes, the rate for qualifying equity short-term capital gains increased from 15% to 20%, while the rate for qualifying long-term equity gains increased from 10% to 12.5%, alongside an increase in the annual exemption threshold from ₹1 lakh to ₹1.25 lakh. “The broader capital-gains framework moved towards a 12.5% long-term rate without indexation, subject to specified exceptions and transitional protection,” he said.
There have also been discussions about rationalising the entire capital gains tax regime to ensure a uniform rate for all holdings and asset classes but tax officials have noted that this would be a very long drawn out process and may not be equitable to all such investments. There was also a clamour of the review of the LTCG and STT rates in early 2025 when foreign institutional investors had started pulling out money from Indian equity markets amidst external volatilities led by trade and tariff moves by US President Donald Trump. While market regulator SEBI is understood to have made a presentation for rationalisation of the tax at that time as well, but it was felt that most of the volatility in the markets was due to external risks and not due to fundamental issues in the Indian economy.
MUST READ: Will Budget 2027 roll out red carpet for FPIs? FM Sitharaman says, 'I recognise the voice'
Proposals and likely impact
This time around, SEBI has once again discussed the issue with the finance ministry and is understood to have highlighted the tax treatment in countries like South Korea, Taiwan, and Brazil, which is more attractive. Several other market participants too have called for a review of the tax given the large exodus of foreign fund flows from Indian markets.
A key concern for the government remains ensuring tax parity between domestic and foreign investors given concerns over round tripping in the past.
Doshi of Nangia Global suggested that the solution need not necessarily be a complete exemption from LTCG for any particular investor category. “A broader rationalisation of LTCG, STCG and STT, along with a provision for foreign currency-based capital gains computation for eligible FPIs, could provide a more balanced and sustainable approach,” he said, adding that equally, tax-neutral treatment for genuine reinvestment and portfolio rebalancing could encourage longer-term capital participation.
Industry chamber PHDCCI, too in a representation, had recently noted that amid geopolitical tensions, the West Asia crisis and competition from emerging markets, India faces challenges in attracting foreign investment. “Rationalising STCG, LTCG and STT rates could improve India's investment appeal,” it had said but pointed out that tax rates are not the only determinative factor for choosing India as an investment destination and staying invested, it is certainly one of the important factors.
Nirav Karkera, Head of Research and Funds Manager, W by Groww also pointed out that SEBI’s proposal is a step in the right direction, but tax efficiency alone will not bring foreign capital back to India. “Lower capital gains taxes would improve post-tax returns, reduce friction and make Indian equities more competitive against other emerging markets,” he said. Ultimately, tax reform can remove a reason for investors to stay away, but it cannot create a reason to invest, he, however, pointed out.
As per a Nomura report on November 3, FIIs sold close to $ 5 billion in the fortnight ending 15 October 2026 — the heaviest fortnightly outflow in 12 fortnights — taking net selling since 15 September 2026 to about $8.8 billion thought the selling intensity has eased over the past 15 days.
Finance Minister Nirmala Sitharaman’s recent comments that the government will review suggestions on long-term capital gains tax, on the backdrop of the outflow of foreign investments from Indian equity markets, has once again sparked expectations of some policy measures on the front.
But the tax treatment on equity transactions continues to be a precarious topic with several experiments and policy moves carried out over the course of several years. Experts underline that tax certainty and predictability continue to be key asks of investors.
“Each change may have an identifiable policy rationale. Viewed cumulatively, however, repeated movement in rates, holding periods, indexation and exemptions affects investment models and exit assumptions,” noted Rohinton Sidhwa, Partner, Deloitte India.
Naitik Doshi, Director- Financial Services, Nangia Global says ultimately, the objective should be to create a predictable and internationally competitive tax framework that attracts foreign capital without disadvantaging domestic investors. “The FM’s willingness to consider stakeholder concerns is encouraging. The real test will be how these competing considerations translate into policy action in the upcoming Budget,” he says.
LTCG over the years:
Over two decades ago in the Union Budget 2004-05, then-Finance Minister P. Chidambaram had announced abolishing the long-term capital gains tax (LTCG) on securities transactions and had replaced it with a securities transaction tax (STT) of 0.15% of the value of security. He had also reduced the short-term capital gains (STCG) from securities to a flat 10%. In Budget 2008-09, he then raised the STCG rate to 15% in-line with the rate of the dividend distribution tax and also introduced the commodities transaction tax like the STT on futures and options. In subsequent years, the STT rate was reduced to 0.1% and then further to 0.01%.
The next big change on long term capital gains tax came in the Union Budget 2018-19 when then finance minister Arun Jaitley brought back the tax on listed equities. Under the move, long term capital gains exceeding Rs 1 lakh was taxed at 10% without allowing the benefit of any indexation. However, all gains up to January 31, 2018 were to be grandfathered.
Finance Minister Nirmala Sitharaman then undertook a significant rationalisation of the LTCG regime in the Union Budget 2024-25. Sidhwa of Deloitte India noted that among other changes, the rate for qualifying equity short-term capital gains increased from 15% to 20%, while the rate for qualifying long-term equity gains increased from 10% to 12.5%, alongside an increase in the annual exemption threshold from ₹1 lakh to ₹1.25 lakh. “The broader capital-gains framework moved towards a 12.5% long-term rate without indexation, subject to specified exceptions and transitional protection,” he said.
There have also been discussions about rationalising the entire capital gains tax regime to ensure a uniform rate for all holdings and asset classes but tax officials have noted that this would be a very long drawn out process and may not be equitable to all such investments. There was also a clamour of the review of the LTCG and STT rates in early 2025 when foreign institutional investors had started pulling out money from Indian equity markets amidst external volatilities led by trade and tariff moves by US President Donald Trump. While market regulator SEBI is understood to have made a presentation for rationalisation of the tax at that time as well, but it was felt that most of the volatility in the markets was due to external risks and not due to fundamental issues in the Indian economy.
MUST READ: Will Budget 2027 roll out red carpet for FPIs? FM Sitharaman says, 'I recognise the voice'
Proposals and likely impact
This time around, SEBI has once again discussed the issue with the finance ministry and is understood to have highlighted the tax treatment in countries like South Korea, Taiwan, and Brazil, which is more attractive. Several other market participants too have called for a review of the tax given the large exodus of foreign fund flows from Indian markets.
A key concern for the government remains ensuring tax parity between domestic and foreign investors given concerns over round tripping in the past.
Doshi of Nangia Global suggested that the solution need not necessarily be a complete exemption from LTCG for any particular investor category. “A broader rationalisation of LTCG, STCG and STT, along with a provision for foreign currency-based capital gains computation for eligible FPIs, could provide a more balanced and sustainable approach,” he said, adding that equally, tax-neutral treatment for genuine reinvestment and portfolio rebalancing could encourage longer-term capital participation.
Industry chamber PHDCCI, too in a representation, had recently noted that amid geopolitical tensions, the West Asia crisis and competition from emerging markets, India faces challenges in attracting foreign investment. “Rationalising STCG, LTCG and STT rates could improve India's investment appeal,” it had said but pointed out that tax rates are not the only determinative factor for choosing India as an investment destination and staying invested, it is certainly one of the important factors.
Nirav Karkera, Head of Research and Funds Manager, W by Groww also pointed out that SEBI’s proposal is a step in the right direction, but tax efficiency alone will not bring foreign capital back to India. “Lower capital gains taxes would improve post-tax returns, reduce friction and make Indian equities more competitive against other emerging markets,” he said. Ultimately, tax reform can remove a reason for investors to stay away, but it cannot create a reason to invest, he, however, pointed out.
As per a Nomura report on November 3, FIIs sold close to $ 5 billion in the fortnight ending 15 October 2026 — the heaviest fortnightly outflow in 12 fortnights — taking net selling since 15 September 2026 to about $8.8 billion thought the selling intensity has eased over the past 15 days.