The Central Government has clarified that it is not considering any proposal to abolish Long-Term Capital Gains (LTCG) tax on equity investments for domestic retail or institutional investors during the current financial year. The clarification came in response to a question raised in the Rajya Sabha regarding whether the government intended to remove the tax to encourage greater participation in equity markets and support economic growth.
The issue was raised by Rajya Sabha Member Neeraj Shekhar, who sought to know whether the Finance Ministry was contemplating the withdrawal of LTCG tax on equities for domestic investors in FY 2026–27 to improve market sentiment, attract more investments, and boost India’s Gross Domestic Product (GDP). The Member also asked whether the government had recently removed LTCG tax for foreign investors and whether a similar benefit would be extended to domestic investors.
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Government Rules Out Any Proposal to Remove LTCG Tax
Replying on behalf of the Finance Ministry, Minister of State for Finance Pankaj Chaudhary categorically stated that no such proposal is currently under consideration.
The Minister clarified that the government’s tax policy, including capital gains taxation, is reviewed periodically during the annual Union Budget exercise after taking into account prevailing macroeconomic conditions and fiscal considerations.
According to the Ministry, there is presently no plan to abolish LTCG tax on equity investments for either retail investors or domestic institutional investors.
Clarification on Tax Relief Granted to Foreign Investors
Responding to the second part of the parliamentary question, the Minister also clarified that the government has not scrapped LTCG tax for foreign investors in general, contrary to reports suggesting a broader exemption.
He explained that the Income-tax (Amendment) Ordinance, 2026 merely rationalised the tax treatment applicable to Foreign Portfolio Investors (FPIs) investing in Government Securities (G-Secs).
Under the amendment, FPIs investing in Government Securities have been granted an exemption from income tax on both interest income and capital gains arising from such investments. The exemption became effective from April 1, 2026, and applies only to interest or capital gains earned on investments in Government Securities on or after that date.
The Ministry emphasized that this exemption is sector-specific and should not be interpreted as the abolition of LTCG tax for all foreign investors or investments in equities.
No Similar Relief Planned for Domestic Equity Investors
The parliamentary response makes it clear that the government is not considering extending the Government Securities-related exemption available to FPIs to domestic investors holding listed equity shares.
As a result, the existing tax regime governing long-term capital gains on equity investments continues to remain in force.
Government Reiterates Position on Section 87A Rebate
The parliamentary clarification comes against the backdrop of changes introduced through Budget 2025 regarding the availability of the rebate under Section 87A of the Income-tax Act.
The Finance Ministry reiterated that the rebate under Section 87A is not available against income taxed at special rates, including both Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG).
Further, Section 112A(6) specifically provides that the rebate under Section 87A shall be computed only after excluding LTCG taxable under Section 112A from the total income. This restriction applies to long-term capital gains exceeding ₹1.25 lakh.
Budget 2025 Clarified Position
The explanatory memorandum accompanying Budget 2025 had explicitly clarified that, beginning Assessment Year 2026–27, resident individuals opting for the new tax regime under Section 115BAC(1A) would receive an enhanced rebate under Section 87A.
The Budget increased the threshold for claiming the rebate from ₹7 lakh to ₹12 lakh and enhanced the maximum rebate amount from ₹25,000 to ₹60,000. However, the memorandum simultaneously made it clear that the rebate cannot be used to offset tax payable on income chargeable at special rates, including capital gains taxable under Sections 111A, 112, and 112A.
Accordingly, taxpayers earning capital gains—whether long-term or short-term—cannot reduce their tax liability on such gains by claiming the Section 87A rebate.
Position Remains Unchanged
The Finance Ministry’s response in Parliament settles speculation surrounding a possible withdrawal of LTCG tax on equity investments. While the government continues to review tax policies during each Budget cycle, it has confirmed that no proposal currently exists to abolish LTCG tax on equities for domestic retail or institutional investors, nor has it introduced any comparable exemption similar to that granted to FPIs investing exclusively in Government Securities.
