India's 2027 Budget May Consider Reducing Long-Term Capital Gains Tax to Boost Stock Market
The government is weighing options, including a possible cut to the 12.5% long-term capital gains tax, as it seeks to revive equity market participation amid weak returns and low wage growth.
Retail participation in Indian equities has grown since the pandemic, with the share of retail holdings in NSE-listed companies rising from 6.58% in March 2020 to 7.66% in June 2024 before slipping to 7.12% in March 2026. The number of demat accounts with CDSL expanded to 19.34 million by September 2026, up from 2.12 million in early 2020.
The government faces a challenge explaining a 7.8% GDP growth rate for April-June while stock-market indices have fallen over the past two years and private-sector wages have remained sluggish. A senior government official told The Indian Express that officials are “discussing every option” regarding possible measures for the equity market, including a reduction or removal of the long-term capital gains (LTCG) tax.
International investors view the 12.5% LTCG tax as relatively high compared with many other markets, where rates are zero or minimal. The tax is applied to rupee gains rather than dollar gains, which adds to investor concerns. Section 72 of the Income-Tax Act, 2025 outlines the computation of capital gains but provides foreign-currency conversion relief only to non-resident investors, excluding domestic investors and foreign portfolio investors (FPIs).
Earlier in the year, the government eliminated withholding tax and both long- and short-term capital gains tax on foreign investors’ holdings of government bonds to attract overseas capital. State Bank of India’s Ecowrap report, dated October 12, recommended extending the holding period for equities to two-to-three years and abolishing the LTCG tax to anchor “hot money” flows.
Finance Minister Nirmala Sitharaman described the debate on the LTCG tax as “healthy” and said she is “keen” to hear further input. She noted that both domestic and foreign investors have raised questions about the LTCG tax and the securities transaction tax, and that the issue has been widely discussed.
SBI Group Chief Economic Adviser Soumya Kanti Ghosh highlighted the need for policy certainty to attract capital in emerging sectors such as artificial intelligence, emphasizing that regulatory predictability will be crucial as competition for AI-linked investment intensifies.