India's LTCG Tax Debate Amid Global Capital Gains Comparisons
Investors demand abolition of long-term capital gains tax as global peers maintain diverse policies.
1Historical Context of Taxation
India previously abolished long-term capital gains tax in 2004 under P. Chidambaram to encourage market participation. However, the levy was reintroduced in 2018 by Arun Jaitley, who argued that equity returns were sufficiently attractive to justify taxation. Since then, the policy has undergone multiple revisions, currently taxing gains exceeding ₹1.25 lakh at 12.5%.
2Current Indian Tax Framework
The current Indian regime imposes a 12.5% tax on long-term gains from equities, mutual funds, gold, and property for annual profits exceeding ₹1.25 lakh. Indexation benefits, which previously adjusted purchase prices for inflation, have been removed. Meanwhile, short-term capital gains are taxed at a higher rate of 20% for investors.
3Global Tax Policy Variations
International approaches to capital gains vary significantly. The United States applies preferential rates based on income, while the UK taxes gains according to individual income brackets without distinguishing between holding periods. Conversely, countries like Singapore, Hong Kong, and Switzerland do not levy any capital gains tax, positioning themselves as attractive hubs for investors.
4Inclusion and Discount Models
Canada utilizes an inclusion system where 50% of gains are added to taxable income, regardless of the holding period. Australia also uses an inclusion model but provides a 50% discount for assets held for at least 12 months. These structures contrast with India’s fixed-rate approach, reflecting diverse philosophies on taxing investment wealth.
5Investor Pressure and Outflows
Market participants are increasingly calling for the abolition of the LTCG tax, citing stagnant equity returns. Foreign investors have reportedly sold a record $31 billion in Indian stocks this year. As retail investors seek better returns elsewhere, the Securities and Exchange Board of India has proposed tax relief to stabilize domestic mutual fund investments.
6Revenue Impact of Taxation
Government revenue from LTCG tax rose significantly from ₹72,249 crore in AY 2024-25 to ₹1,29,158 crore in AY 2025-26. Despite this growth, recent market volatility and foreign institutional investor outflows have led to projections of lower collections for the upcoming fiscal years, complicating the government's fiscal planning and potential tax reform decisions.
7Fiscal Feasibility of Abolition
SBI Research estimates that if the government were to abolish the LTCG tax, the resulting fiscal shortfall for FY28 would range between ₹40,000 and ₹50,000 crore. This represents approximately 0.1% to 0.2% of the total budget, suggesting that the government could theoretically absorb the hit if it prioritized market stimulation over immediate tax revenue.
8Future Market Outlook
The debate over LTCG tax reflects a broader tension between fiscal revenue requirements and the need to maintain market competitiveness. As India’s equity market lags behind emerging peers, policymakers face pressure to balance tax collection with investor sentiment. Future decisions will likely hinge on whether market recovery outweighs the loss of tax income.
Original article: mint - money — India's LTCG Tax Debate Amid Global Capital Gains Comparisons