Cutting LTCG mainly benefits the rich; don’t call it a middle-class issue: Tax expert on capital gains tax regime

The debate over the capital gains tax in India is often framed as a middle-class concern, but hard data suggests otherwise. According to Ajay Rotti, Founder of Tax Compaas, long-term capital gains (LTCG) tax is overwhelmingly paid by the rich and the super-rich—making sweeping calls for tax cuts far more complex than they appear.

Official Income Tax Department data for Assessment Year 2023-24 shows that total LTCG reported by taxpayers stood at Rs 8.58 lakh crore, spread across nearly 8 crore returns. Yet this enormous figure is highly concentrated at the top. Taxpayers earning below Rs 10 lakh a year contributed less than 5% of total LTCG, or about Rs 39,870 crore, despite forming a large base of investors.

The table of LTCG distribution reveals a steep climb as income rises. Investors reporting gains of up to Rs 1.5 lakh accounted for just Rs 10,564 crore, with an average gain of Rs 36,000 per return. Even those in the Rs 5–10 lakh LTCG bracket reported average gains of under Rs 10 lakh. In short, for the vast majority of taxpayers, long-term capital gains remain modest.

The picture changes dramatically at the top end. Taxpayers reporting LTCG between Rs 50 lakh and Rs 1 crore declared gains of over Rs 23,300 crore, while those in the Rs 1–5 crore bracket reported nearly Rs 58,872 crore. At the extreme end, just 191 taxpayers with LTCG exceeding Rs 5 crore accounted for a staggering Rs 3.74 lakh crore—around 44% of the total gains reported. Average LTCG per return in this category stood at over Rs 195 crore.

“This data makes one thing clear,” Rotti said. “Eighty percent of long-term capital gains are earned by people with reported incomes above ₹5 crore. At over 90%, the share goes to those earning more than ₹50 lakh. LTCG is not a middle-class tax issue—it is largely paid by the wealthy.”

The data also explains why any blanket reduction or exemption in LTCG tax would disproportionately benefit high-income investors, while delivering limited relief to small savers investing through mutual funds or SIPs.

However, many have been blaming the government for high rates of capital gains tax. Aam Aadmi Party (AAP) MP Raghav Chadha has urged the government to rethink its approach to taxing long-term investments. Speaking in Parliament, Chadha highlighted that foreign portfolio investors withdrew nearly Rs 1.6 lakh crore from Indian equities between January and mid-December 2025. “When foreign money left, it was Indian investors who stepped in,” he said, noting that domestic investors poured nearly Rs 7 lakh crore into equities during the same period.

Chadha argued that despite this resilience, domestic savers face high capital gains taxes, loss of indexation benefits, elevated surcharges and frequent policy changes. “Long-term investment is being treated like short-term speculation. If India wants deep capital markets and patient capital, investment must be nurtured, not penalised,” he said.

As policymakers weigh reform, the challenge is clear: encouraging long-term domestic investment without turning a tax largely borne by the wealthy into a windfall for the very top.