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What Is LTCG Tax And Will The Govt Abolish It? Here’s What Finance Ministry Told Lok Sabha

Samira Vishwas | July 21, 2026 10:24 AM CST

The Centre has made it clear that it has no intention of removing the long-term capital gains (LTCG) tax on equity investments for retail and domestic investors. There were concerns about the impact of the tax on market sentiment and domestic investors. Responding to a question in Lok Sabha on Monday, July 20, Minister of State for Finance Pankaj Chaudhary said there was no proposal under consideration to withdraw the tax.

The clarification came in response to a query by MP Anand Bhadauria, who asked if the government planned to remove the LTCG tax for retail and domestic investors to encourage investment and ensure a fairer environment between Indian and foreign investors. “At present, there is no such proposal under consideration,” Chaudhary said in his written reply.

What Is LTCG Tax?

LTCG (long-term capital gain) tax is on the profit that you earn from selling a few specific investment products held over a minimum tenure of time. Equity shares and equity mutual funds are classified as long-term capital assets when they are held over 12 months.

At present:

LTCG is taxed at 12.5 per cent.

This tax is applicable only on gains above Rs 1.25 lakh in a financial year.

The tax exemption on LTCG of gains up to Rs 1.25 lakh continues.

For example, if your total long-term capital gain from listed shares in a financial year is Rs 2 lakh, tax is payable on Rs 75,000 after availing the exemption of Rs 1.25 lakh.

Why The Government Rejected Removing LTCG Tax

The minister said that the tax rates are not permanent and are reviewed occasionally as part of the annual budget process. “Tax policies, including capital gains tax rates, are reviewed periodically as part of the annual budgetary process and legislative revisions after taking into consideration the macro-economic parameters,” he added.

This means the government is still considering tax policies on the basis of the overall economic scenario but there is no suggestion at present to do away with the LTCG tax on equities.

LTCG Collections Surge

The government also announced new data showing a sharp increase in the revenue collected from the LTCG tax on equity transactions over the last year.

Assessment Year	Revenue from LTCG Tax on Equity Transactions
IS 2024-25	Rs 72,249 crore
IS 2025-26	Rs 1,29,158 crore

The figures are showing collections are up nearly 78 per cent over a year ago, a reflection of both greater market participation and greater taxable gains.

The minister also said that data for the next two assessment years are not available yet, as the income tax returns are still being filed. “ITRs for AY 2026-27 (Relevant to the financial year 2025-26) and 2027-28 (Relevant to the financial year 2026-27) are yet to be filed and hence the data in respect of these AYs is not available,” Chaudhary said.

Do Foreign Investors Pay A Different LTCG Tax Rate?

The usual question asked is, do Foreign Portfolio Investors (FPIs) pay a lower tax rate as compared to Indian investors?

The finance ministry said domestic investors and FPIs pay the same 12.5 per cent LTCG tax on equity investments.

However, the government had provided a different tax advantage to the FPIs investing in government securities (G-Secs). Chaudary said that by the Income Tax (Amendment) Ordinance, 2026, FPIs will be exempt from payment of income tax on interest income and capital gains received from G-Secs for the income which is arising from April 1, 2026, and thereafter.

According to the minister, this amendment is aimed at recognising the importance of a competitive tax regime in attracting global capital,” the minister said. “The Government decided to rationalise the tax treatment applicable to investments by FPIs in Government Securities, by exempting such investments from income tax on any interest or capital gain. This step will align the taxation on G-Secs with many comparable jurisdictions and ensure stable, systematic inflow of durable, patient foreign capital and long-term investors such as pension funds, insurance companies and sovereign wealth funds,” Chaudhary said.

What Does This Mean For Investors?

The tax structure on long-term capital gains from shares and equity mutual funds remains unchanged. Retail investors will continue to pay LTCG tax at 12.5 per cent on gains above Rs 1.25 lakh in a financial year.

While the government says that tax policies are reviewed regularly during the budget process, it has clarified that there is no plan to abolish LTCG tax for domestic investors at present.

Priyanka Roshan

Priyanka Roshan is a business writer and assistant editor at the NewsX website who tracks everything from stock market swings and corporate earnings to personal finance trends and policy shifts. Known for turning fast-moving business developments into sharp, reader-friendly stories, she combines speed, accuracy, and a data-driven approach to break down complex financial news for everyday audiences.

With over 9.5 years of newsroom experience, Priyanka has worked with leading media organisations, including Bussiness, Times Now, and Ping Digital, covering diverse beats such as business, politics, technology, auto, travel, sports, and the world. From live breaking news desks to SEO-led digital storytelling, she specialises in creating engaging content that keeps readers informed without overwhelming them.

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