Budget 2027: FICCI seeks removal of LTCG tax on equities, suggests higher STT to offset revenue loss

Industry body Federation of Indian Chambers of Commerce and Industry (FICCI) has urged the government to restore the long-term capital gains (LTCG) tax exemption on listed securities in Union Budget 2027-28, arguing that investors face a double tax burden through LTCG tax and Securities Transaction Tax (STT).

In its pre-Budget recommendations, FICCI suggested that the government could increase STT on delivery-based transactions, if necessary, to compensate for the revenue loss arising from the proposed exemption, Moneycontrol reported on Wednesday.

The industry body also recommended maintaining the revised tax framework for approximately 10 years to provide greater certainty to investors.

Why is FICCI seeking LTCG tax removal?

FICCI argued that investors have faced two levies since the government reintroduced LTCG tax in 2018 while retaining STT.

The 2018 Budget imposed a 10% tax on qualifying long-term capital gains exceeding Rs 1 lakh.

The 2024 Budget subsequently increased the LTCG rate to 12.5% and raised the annual exemption threshold to Rs 1.25 lakh. It also increased the tax rate on qualifying short-term capital gains to 20%.

FICCI believes removing LTCG tax could improve post-tax equity returns and encourage long-term investment.

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What did SBI Research recommend?

Separately, SBI Research has suggested that abolishing LTCG tax could be fiscally manageable, with the potential revenue loss estimated at Rs 40,000-50,000 crore in FY28.

In its Ecowrap report, the research wing estimated that the shortfall would represent approximately 0.1-0.2% of GDP, allowing the government to absorb the impact without significantly disrupting fiscal consolidation.

SBI Research projected LTCG collections of Rs 40,000-50,000 crore in FY27, compared with approximately Rs 1 lakh crore in FY26.

It also recommended increasing the annual LTCG exemption threshold from Rs 1.25 lakh to Rs 2 lakh and linking it to inflation.

For investments held between two and three years, it proposed a reduced LTCG rate of 5%, while investments exceeding three years could attract zero tax.

To offset revenue losses, SBI Research suggested raising STT by 50%, potentially generating an additional Rs 45,000 crore in FY28.

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Other tax relief proposals

FICCI also recommended allowing foreign investors to calculate capital gains in their original investment currency to prevent exchange-rate depreciation from creating taxable gains.

It proposed scrapping the 0.1% tax deducted at source on qualifying purchases of goods and e-commerce transactions, citing compliance costs.

Additionally, FICCI sought wider carry-forward provisions for business losses following mergers and relief for taxpayers whose first appeals remain pending beyond two years.

The proposals remain recommendations, with any changes dependent on government decisions in Budget 2027-28.

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