Budget 2026: Govt should ease LTCG rules to boost long-term investing in markets, says SBI Securities’ Sunny Agarwal

Calls for a rethink of long-term capital gains (LTCG) tax are growing louder as market volatility continues to erode investor returns. With recent corrections weighing heavily on portfolios, many market participants argue that muted gains combined with higher tax outgo are making Indian equities less attractive, especially in an increasingly competitive global investment landscape.

Sunny Agarwal, Head of Fundamental Research (Retail Desk) at SBI Securities, said, “We always feel that the government should ensure that at least the capital market as a segment should not be looked upon as a key tax driver. In fact, the government should encourage long-term capital investment in the market. So, at least on the LTCG front, we may expect that the tenure to claim LTCG benefits can be extended from one year to two years, and to some extent there can be moderation in the taxation rate as well.”

He added, “At the same time, to attract foreign investors through GIFT City, we may see some updates in terms of investment incentives, which could be a positive step. And one more thing — double taxation, which has always been a concern, whether on buybacks or dividend distribution, could also see some reform. Overall, we are hopeful that the capital market as a segment will get some benefits in the upcoming Budget.”

The debate carries added significance because India remains among the few major markets that tax foreign investors on equity gains -- a policy some believe puts domestic markets at a relative disadvantage. While policymakers may be reluctant to roll back a revenue-generating levy altogether, investors say there is scope for a structural review of the tax framework to soften its impact, balancing fiscal interests with the need to keep India an appealing destination for global capital.

Budget 2024

The Union Budget 2024 had brought sweeping changes to India’s capital gains tax framework, effective July 23, 2024, aimed at simplifying and standardising the system. A key reform was the introduction of a uniform long-term capital gains tax rate of 12.5% across most asset classes, including listed equities, real estate and unlisted shares, replacing the earlier patchwork of rates.

Another major shift was the removal of the indexation benefit for most assets, which earlier allowed taxpayers to adjust purchase costs for inflation and reduce taxable gains. At the same time, the government raised the short-term capital gains (STCG) tax on listed equities and equity-oriented mutual funds — from 15% to 20% — where Securities Transaction Tax (STT) is paid.

The Budget also streamlined holding periods. Listed securities now qualify as long-term after 12 months, while assets such as property, gold and unlisted shares require a 24-month holding period, creating a more consistent and predictable tax structure. In addition, STT on equity and index trades was increased from 0.01% to 0.02%.

Taxation overview

When these changes were announced, market participants initially urged the government to reconsider. However, buoyant markets at the time helped absorb the impact, as investors were still enjoying strong portfolio gains. The narrative has shifted since, with corrections exposing the heavier tax burden more sharply.

Helios Capital founder Samir Arora has been among the most vocal critics of capital gains taxation, particularly in the case of foreign institutional investors (FIIs), calling it a “major misstep.” “The biggest error they have made and one they must acknowledge is imposing capital gains tax, especially on foreign investors. It is entirely wrong,” Arora said at a media interaction.

Recently, Gurmeet Chadha, Chief Investment Officer at Complete Circle, has echoed similar views, urging Finance Minister Nirmala Sitharaman to extend the LTCG holding period for equities to two years and exempt such gains from tax. “My one request is to increase the LTCG tenure for equities to two years and make it tax-free. Let the short-term capital gains tax remain unchanged,” Chadha said.

He argued that such a move could draw in greater foreign direct investment and risk capital, particularly for infrastructure projects and public sector enterprises, boosting capital formation and job creation over time. To address concerns over revenue loss, Chadha suggested raising STT collections as a short-term offset.

The concerns around taxation and foreign investor confidence come at a time when Indian equity markets are under pressure, intensifying calls for a policy recalibration that aligns fiscal priorities with the need to sustain long-term market competitiveness.