Budget 2026: Will government change the capital gains tax regime to ease pressure on equity investors?

Ahead of the Union Budget for 2026–27, market participants have been urging the government to provide relief on capital market taxation, particularly by raising the exemption limit on long-term capital gains (LTCG), while cautioning against any further increase in transaction-related levies. Finance Minister Nirmala Sitharaman is scheduled to present the Union Budget on February 1, a day when both the National Stock Exchange (NSE) and the BSE will remain open for live trading, a practice followed in recent years due to the Budget’s market-sensitive nature.

As per a Business Today markets survey on expectations, most experts said the Union Budget for 2026–27 is likely to avoid tinkering with headline equity capital market taxes, despite investor demands for relief. While raising the long-term capital gains (LTCG) exemption limit remains a key ask, analysts believe the government is unlikely to risk unsettling market sentiment or compromising fiscal stability.

Maulik Patel, Head of Research at Equirus Securities, said tax stability is likely to be prioritised. “STCG and LTCG are likely to remain unchanged to preserve market stability,” he said, adding that a reduction in securities transaction tax (STT) also appears unlikely. Patel pointed out that STT has become a reliable revenue stream for the government.

“Revenue from STT for FY26 is projected at around Rs 78,000 crore, and given its ease of collection and steady contribution, a rollback looks improbable,” he said. He also noted that recent GST rate cuts have already led to an estimated revenue forgone of nearly Rs 50,000 crore, limiting the government’s room for manoeuvre.

Nandish Shah, AVP – PCG Research & Advisory (Fundamental) at Motilal Oswal Wealth Management, echoed this view, saying expectations of tax changes are muted. “There has been no expectation of any tinkering with long-term capital gains tax, short-term capital gains tax or STT,” Shah said. According to him, the FY27 Budget will likely be a “tightrope walk” between maintaining fiscal consolidation and continuing to push capital expenditure, which he described as “the need of the hour”.

Manish Chowdhury, Head of Research at StoxBox, said while tax rates are expected to remain unchanged, there is a small possibility of a structural tweak. “Though we do not expect any change in the tax rate for both LTCG and STCG, there is a remote possibility of increasing the tenure for calculating LTCG from one year to two years,” he said. Chowdhury added that such a move could help curb short-term trading behaviour. “An increased tenure would help cement flows into equity markets, especially from retail investors, while institutional flows are unlikely to be impacted,” he said.

Nitasha Shankar, Head of Equity Strategy at Yes Securities India, warned against any adverse changes to equity taxation. “Capital market participation for retail investors has turned healthy in the post-Covid period,” she said. “Any tweaks or increase in tax rates could be taken negatively and may lead to panic or reduced participation.”

Chirag Jain, CEO of Ashika Credit Capital, also expects continuity rather than change. “With strong retail participation and capital markets emerging as a key savings avenue, the government probably won’t risk unsettling sentiment,” Jain said. “If there are any tweaks, they are more likely to be clarificatory rather than material changes.”

Narendra Solanki, Head of Fundamental Research – Investment Services at Anand Rathi Share and Stock Brokers, said there are no strong public signals pointing to cuts in core tax rates. “Recent budgets have already raised these rates, and fiscal constraints remain,” he said. However, Solanki acknowledged growing pressure from investors. “Market participants are actively pushing for relief measures such as raising the LTCG exemption limit and avoiding any further increase in STT,” he added.

Overall, while the market continues to lobby for higher LTCG exemptions and tax relief for long-term investors, expert consensus suggests Budget 2026 is more likely to emphasise stability and predictability in capital market taxation rather than sweeping reforms.

Current tax slabs

Equity capital gains in India are taxed based on the holding period. Short-term capital gains (STCG) apply when listed equities or equity mutual funds are sold within 12 months, while gains from assets held beyond one year are treated as long-term capital gains. Under the post-Budget 2024 regime applicable for FY26, STCG is taxed at 20%, up from 15% earlier, while LTCG is taxed at 12.5% on gains exceeding the exemption limit of Rs 1.25 lakh. The tax is calculated by deducting the purchase price from the sale value, with different rates and conditions depending on the asset type and holding period.

Earlier, JM Financial Services recommended that the tax-free exemption limit on equity LTCG be increased from the current Rs 1.25 lakh to Rs 2 lakh. The brokerage argued that such a move would provide meaningful relief to small and medium investors, particularly those investing systematically through SIPs, without materially denting government revenues.