Explained: what a cut in long-term capital gains tax on shares could mean for investors

What is being considered?

The government is examining a restructuring of long-term capital gains (LTCG) tax on listed shares, including a possible cut from the current rate of 12.5%, ANI reported on 27 October, citing sources. “The government is examining the LTCG rate with what is applicable in major economies,” the sources said. Any change could apply to both domestic and foreign investors, and one idea is to let foreign portfolio investors (FPIs) calculate their gains in dollars. No final decision has been taken; changes of this kind are normally announced in the Union Budget, which for 2027–28 is due in February.

The review comes after weak or negative market returns over the past two years, sluggish wage growth and selling by foreign investors, according to the report.

On 13 October, at the Bloomberg New Economy Forum in New Delhi, Finance Minister Nirmala Sitharaman said investors had raised LTCG, the securities transaction tax and the way different asset classes are taxed. She called it a healthy discussion and said she wanted stakeholders’ views, but did not say what might change. The Sensex rose 1,109 points that day.

How the tax works today

• Long-term gains — on listed shares and equity mutual funds held for more than 12 months — are taxed at 12.5% on gains above ₹1.25 lakh in a financial year, without indexation.
• Short-term gains — on holdings of 12 months or less — are taxed at 20%.
• A 4% health and education cess is added to the tax, plus a surcharge for higher incomes.

Long-term gains on listed shares were tax-free until 2018, when a 10% tax on gains above ₹1 lakh was introduced. The Budget of July 2024 raised the rate to 12.5%, lifted the exemption to ₹1.25 lakh and raised the short-term rate from 15% to 20%.

A worked example

Suppose you sell shares held for more than a year at a profit of ₹3 lakh, with no other capital gains that year and no surcharge.

The 10% column is only an illustration — the government has not proposed any specific rate.

Why “gains in dollars” matters to foreign investors

The rupee has weakened sharply: it averaged about ₹88.4 to the dollar in October 2025 and ₹95.5 in September 2026, according to Federal Reserve data in our data hub. A foreign fund whose Indian shares were flat in dollar terms would still show a gain in rupees — and pay tax on it. Measuring gains in dollars would remove that currency effect.

What it means for you

Nothing changes until the government announces it, usually in the Budget, and a change would apply from the date it specifies. A lower rate would mainly help investors with large long-term gains; most small investors with gains under ₹1.25 lakh a year already pay no LTCG tax.

This explainer is for general information and is not tax advice. Check the rules that apply to you with a qualified adviser.