No proposal to abolish LTCG on listed equities: Govt in Lok Sabha

The government on Monday ruled out scrapping the long-term capital gains tax on listed equities, stating there is no proposal under consideration to abolish the levy for retail and domestic investors. Minister of State for Finance Pankaj Chaudhary, in response to a question in Lok Sabha, said the Centre has no plans to withdraw the tax at present, though tax policies, including capital gains rates, are reviewed periodically during the annual Budget exercise considering broader macroeconomic conditions.

The clarification on long-term capital gains tax follows recurring calls from investors and market participants to roll back the levy. Some argue it discourages long-term investing and reduces post-tax returns, while others seek parity between domestic investors and certain foreign investors after recent tax exemptions for foreign portfolio investors investing in government securities. The government, however, pointed to higher collections from equity gains. 

Data shared in Parliament showed revenue from long-term capital gains tax on equity transactions rose nearly 78% to ₹1,29,158 crore in Assessment Year 2025-26 from ₹72,249 crore in the previous year.

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Under the current tax regime, long-term capital gains arise when listed shares or equity-oriented mutual funds are sold after being held for more than one year. Gains above ₹1.25 lakh in a financial year are taxed at 12.5%, while gains up to that level remain exempt. Short-term capital gains on listed equities are taxed at 20%. These rates have remained unchanged since the changes announced in the July 2024 Union Budget.

The issue resurfaced several times over the past year as equity markets touched record highs and retail participation increased. Many investors and market experts argued that lowering the long-term capital gains tax rate or raising the exemption limit could encourage long-term investing and improve market sentiment. Similar questions on abolishing the tax have also been raised in Parliament earlier, with the Finance Ministry maintaining there is no proposal to withdraw the levy. 

In a separate written response in the Lok Sabha, Chaudhary also said the government is not currently considering any proposal to privatise public sector banks. This statement comes amid reports that the government is at an advanced stage of selling its stake, along with that of Life Insurance Corporation of India, in IDBI Bank.

The latest response marks a shift from the Budget for 2021-22, when Finance Minister Nirmala Sitharaman had announced plans to privatise two public sector banks apart from IDBI Bank. The delay in the strategic disinvestment of IDBI Bank appears to have led the government to reconsider any wider privatisation move.