No Proposal to Abolish Equity LTCG Tax, Government Informs Lok Sabha

The Central Government has clarified that it is not considering any proposal to abolish Long-Term Capital Gains (LTCG) tax on equity investments, including investments made by retail investors. The clarification was provided through a written reply to an unstarred question in the Lok Sabha.

According to the information presented before Parliament, revenue collected from LTCG tax on equity transactions increased substantially between two consecutive assessment years. Collections stood at ₹72,249 crore in Assessment Year (AY) 2024–25, corresponding to Financial Year (FY) 2023–24. The amount subsequently increased to ₹1,29,158 crore in AY 2025–26, relating to FY 2024–25.

The government stated that comparable figures for subsequent assessment years are currently unavailable because the relevant income-tax returns have not yet been filed and processed.

Addressing questions regarding the taxation of Foreign Portfolio Investors (FPIs), the government confirmed that the 12.5% LTCG tax rate applicable to domestic and retail equity investors also applies to FPIs earning long-term capital gains from equity investments. Therefore, foreign portfolio investors have not been granted any separate LTCG tax exemption for gains arising from equities.

The government further clarified that the recently introduced tax exemption for specified FPI investments is restricted to Government Securities (G-Secs). It does not extend to equity shares or other equity-related investments. Consequently, FPIs remain liable to pay LTCG tax on equity gains at the applicable rate, while the exemption operates only in relation to eligible government securities.

Explaining the policy rationale, the government said that the exemption for investments in government securities is intended to maintain a competitive tax framework and improve India’s ability to attract international capital. The measure seeks to align the taxation of Indian government securities with practices followed in comparable jurisdictions.

The exemption is also expected to support stable and long-term foreign investment from institutional investors such as pension funds, insurance companies and sovereign wealth funds. Such investors generally provide durable capital and may contribute to the systematic development of the government securities market.

While confirming that capital gains tax provisions and rates are reviewed periodically during the annual Union Budget process, the government stated that any legislative changes are considered after evaluating prevailing macroeconomic conditions and other relevant policy factors. However, as of the date of the parliamentary reply, no proposal to withdraw LTCG tax on equity investments was under consideration. CA Sansaar