Govt Rejects Demands to Abolish Long-Term Capital Gains Tax on Equities, 12.5% LTCG Tax Structure Remain Unchanged

The Indian government has dismissed reports of the removal of the Long-Term Capital Gains (LTCG) tax on equities, confirming via a written reply in Parliament that no such restructuring plan is under consideration.

The clarification puts an end to ongoing stock market rumors. With domestic retail participation reaching record highs, many anticipated that the government might lower or eliminate the levy to reward patient, long-term capital. However, the existing tax framework will stay exactly as it is.

The demand to abolish the equity LTCG tax recently gained momentum after investors on the matter that individual retail investors are essentially subject to double taxation on the same deployment of capital.

When buying or selling listed shares in India, investors pay Securities Transaction Tax (STT). On top of that, if they hold the equity assets for more than 12 months and book profits, they must pay a 12.5% LTCG tax on any net gains that exceed the threshold of ₹1.25 lakh within a single financial year.

Why the Government Is Holding Its Ground

Despite persistent pressure from various industry lobbies, the government is maintaining its position for two reasons, structural fairness and fiscal revenue.

First, capital gains tax serves as a major revenue source for public spending and infrastructure development. Providing a complete tax exemption to stock market investors would create a noticeable deficit in national tax collections.

Second, the tax department is prioritizing “horizontal equity”, the practice of treating different classes of investment avenues similarly. Under current rules, long-term gains from real estate, gold, and equity mutual funds are aligned under comparable parameters. Making direct stock investments entirely tax-free would create an asset-class imbalance, potentially pulling capital away from other vital sectors like housing and physical assets.

What This Means for Retail Savers

For retail investors, it means there will be no surprise tax cuts in the near term. However, the framework remains highly manageable for small-scale savers.

Because the initial ₹1.25 lakh of profit generated each year remains completely tax-exempt, the vast majority of small, middle-class household savers do not end up paying any LTCG tax at all. While institutional players and high-net-worth individuals (HNIs) must continue to factor the 12.5% rate into their long-term compounding math, Dalal Street's expansion remains supported by local household savings and steady monthly SIPs.

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