The Government of India has formally clarified its stance regarding the taxation of equity investments, specifically addressing the demands for the removal of Long-Term Capital Gains (LTCG) tax. In a written response provided to the Lok Sabha on July 20, Minister of State for Finance Pankaj Chaudhary stated that there is currently no proposal under consideration to abolish LTCG tax for retail and domestic investors. This clarification comes at a time when various market participants and stakeholders have been advocating for the removal of this tax to boost market sentiment, protect domestic investors, and create a level playing field between Indian and foreign investors.
Government Stance in Parliament
During the parliamentary session, a specific inquiry was raised regarding whether the government intended to scrap the LTCG tax for retail and domestic investors to improve the overall market environment. The query highlighted concerns about market sentiment and the need for parity between different classes of investors. In his response, Minister Pankaj Chaudhary emphasized that no such proposal is currently being considered by the Ministry of Finance. He further explained that tax policies, including the rates applicable to capital gains, are subject to periodic reviews, while these reviews are typically conducted as part of the annual budget process and through legislative amendments, taking into full account various macro-economic parameters and the broader economic landscape of the country.
Revenue Collection from LTCG Tax
The government also shared significant data regarding the revenue generated through the collection of LTCG tax on equity transactions. The figures indicate a substantial increase in tax collection over the recent assessment years. For the Financial Year 2023-24, which corresponds to the Assessment Year 2024-25, the LTCG collection stood at 72249 crore rupees. This figure saw a sharp rise in the following period. For the Financial Year 2024-25, associated with the Assessment Year 2025-26, the collection reached 129158 crore rupees. 01 lakh crore rupees through LTCG tax. 5 percent. 25 lakh rupees per financial year. Under the existing tax laws, an asset is classified as a long-term capital asset if it's held by the investor for a period exceeding 12 months.
Uniformity in Taxation Across Investor Classes
Addressing concerns regarding potential disparities in tax treatment, the government clarified that the tax regime is uniform for different types of investors. 5 percent LTCG tax rate applies equally to FPIs, domestic institutional investors, and individual retail investors. This uniformity is intended to maintain a balanced investment environment. However, the Minister did note a specific exception introduced through the Income-Tax (Amendment) Ordinance, 2026. This ordinance was designed to rationalize tax rules specifically for foreign investors investing in Government Securities (G-Secs), while under this specific provision, such investments are exempt from income tax on any interest earned or capital gains realized, a move aimed at attracting foreign capital into government debt instruments.
Finance Minister's Previous Remarks
The recent clarification in the Lok Sabha follows comments made by Union Finance Minister Nirmala Sitharaman in May. At that time, the Finance Minister had indicated that the government remains open to hearing the concerns of stock market investors regarding the taxation system. When questioned about the demands for a review of both LTCG and Short-Term Capital Gains (STCG) tax, she stated that the government is always ready to listen to the public on any issue, including specific tax-related matters. She had assured that the government would certainly consider suggestions provided by market participants. Despite this openness to dialogue, the current official position remains that no immediate changes or abolitions are planned for the LTCG tax structure for equity investors.