Will retail investors get relief from LTCG tax? Here's what the Finance Ministry told Parliament

The Centre is not considering any proposal to abolish long-term capital gains (LTCG) tax on equity investments for domestic retail or institutional investors, the Finance Ministry has informed Parliament, putting to rest speculation about a possible tax relief this financial year.

The clarification came in response to a question raised by Rajya Sabha MP Neeraj Shekhar on July 28, 2026. Shekhar had asked whether the government was contemplating scrapping LTCG tax on equities during FY27 to boost market sentiment, attract investments and support economic growth. He also sought to know whether a similar benefit extended to certain foreign investors could be made available to domestic investors.

No proposal to abolish LTCG tax

Replying on behalf of the Finance Ministry, Minister of State for Finance Pankaj Chaudhary categorically stated that there is no such proposal under consideration.

"There is no such proposal under consideration," the minister said in his written reply.

He added that tax policies, including capital gains tax rates, are reviewed periodically as part of the annual Union Budget process after considering various macroeconomic parameters. The response indicates that any changes to the capital gains tax regime, if at all, would be examined during the budget exercise rather than through a mid-year policy decision.

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How LTCG tax on equities works

Long-term capital gains (LTCG) tax applies to profits earned from selling equity shares held for more than 12 months, provided Securities Transaction Tax (STT) has been paid on the transaction.

Currently, LTCG on listed equity shares is taxed at a flat rate of 12.5%, along with applicable surcharge and cess, on gains exceeding ₹1.25 lakh in a financial year. The first ₹1.25 lakh of long-term capital gains remains exempt from tax.

For unlisted shares, gains qualify as long term only after a holding period of more than 24 months and are also taxed at 12.5%, although no exemption threshold is available.

The current tax structure applies to transactions on or after July 23, 2024. Transactions executed before that date continue to be governed by the earlier regime, under which LTCG on listed equities was taxed at 10% on gains exceeding ₹1 lakh.

The Income-tax Act also does not permit indexation benefits on equity shares while calculating LTCG. Additionally, shares acquired before February 1, 2018, continue to enjoy protection under the grandfathering clause, which safeguards the cost of acquisition up to the fair market value as of January 31, 2018.

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Clarification on tax relief for FPIs

Shekhar also asked whether the government had recently abolished LTCG tax for foreign investors and whether similar relief could be extended to domestic investors.

Clarifying the position, Chaudhary said the government has not removed LTCG tax for foreign investors in general.

Instead, he explained that the Income-tax (Amendment) Ordinance, 2026, only rationalised the tax treatment for Foreign Portfolio Investors (FPIs) investing in Government Securities (G-Secs).

Under the ordinance, FPIs are exempt from income tax on both interest income and capital gains arising from investments in eligible Government Securities. The exemption is effective from April 1, 2026, and applies only to interest or capital gains earned from such investments on or after that date.

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Section 87A rebate still unavailable on capital gains

The minister's reply also comes against the backdrop of continued confusion over the availability of the Section 87A tax rebate on capital gains.

Under the changes announced in Budget 2025, taxpayers cannot claim the Section 87A rebate against income taxed at special rates, including long-term capital gains (LTCG) and short-term capital gains (STCG). Although the Budget increased the rebate threshold under the new tax regime, the benefit remains available only for income taxed at normal slab rates and not for capital gains. This means taxpayers liable to pay tax on equity gains cannot use the Section 87A rebate to reduce their LTCG or STCG tax liability.

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