The central government is reportedly examining changes to India’s long-term capital gains (LTCG) tax framework for equity investments ahead of the next Union Budget. The review comes amid significant foreign portfolio investor (FPI) outflows and renewed discussion about the competitiveness of India’s equity market compared with other investment destinations.
According to a report by Moneycontrol, citing people familiar with the discussions, the government is evaluating whether the existing tax structure should be revised to bring it closer to arrangements in major global economies. However, no official decision has been announced, and the current tax provisions remain in place.
What Is the Current LTCG Tax on Listed Equities?
Under the provisions described in the report, long-term capital gains from listed equity shares are taxed at 12.5% on gains exceeding ₹1.25 lakh in a financial year, subject to applicable conditions. Indexation benefits are not available under this framework.
The ₹1.25 lakh annual exemption applies to eligible listed equity shares and certain equity-oriented investments covered by the relevant provisions. Gains from unlisted shares are also subject to capital gains taxation, but the same ₹1.25 lakh exemption does not apply to them.
The government’s reported review could examine the rate, the exemption structure or the way gains are calculated. The precise scope of any potential changes remains unclear.
For investors, the distinction between existing law and a possible policy revision is important. Until a formal amendment is announced and the relevant provisions take effect, tax calculations should continue to follow the applicable rules.
Government Consults Market Stakeholders
Moneycontrol reported that the Centre has held discussions with industry representatives, the Securities and Exchange Board of India (SEBI), the Central Board of Direct Taxes (CBDT), banks and other stakeholders.
The discussions reportedly focus on the implications of the current tax framework for capital flows and India’s attractiveness to overseas investors.
A senior banking official cited in the report said the government recognised the need to review the structure to improve the competitiveness of Indian equities. The report also said Finance Minister Nirmala Sitharaman expressed interest in hearing views on the removal of LTCG tax during remarks on October 13.
These discussions do not amount to a confirmed policy change. Whether the government will lower the rate, revise the calculation method or retain the existing framework has not been established.
Foreign Investor Outflows Add to the Debate
The reported review comes against the backdrop of substantial withdrawals by foreign portfolio investors from Indian equities.
According to data attributed to Central Depository Services Ltd (CDSL) in the report, cumulative FPI equity outflows reached ₹3.1 lakh crore in 2026, compared with ₹1.7 lakh crore withdrawn during the whole of 2025.
The outflows have intensified discussion about factors that affect overseas investment decisions. These can include taxation, market valuations, economic conditions, currency movements and returns available in other countries.
Tax is one part of the investment equation. For foreign investors, returns measured in rupees may differ from the amounts ultimately realised in their home currencies, particularly when exchange rates move during the investment period.
The extent to which LTCG taxation has contributed to the reported outflows has not been quantified in the supplied report.
How India’s Tax Framework Compares Internationally
Tax treatment of equity gains varies widely across countries and depends on factors such as investor residency, the type of security, holding period and applicable exemptions.
The Moneycontrol report notes that certain equity gains may be exempt from capital gains tax under relevant conditions in markets including the United States, United Kingdom, Singapore, Hong Kong, the United Arab Emirates, Japan and Canada. It also cites different treatment for shares in China.
These comparisons require care because a headline tax rate alone may not reflect an investor’s total tax liability. Countries can apply different rules to residents and non-residents, and other taxes or eligibility conditions may affect the final outcome.
The government is reportedly assessing international approaches as part of its review of India’s framework.
Dollar-Based Capital Gains Calculation Under Consideration
Another proposal mentioned in the report concerns calculating capital gains for foreign investors in dollar terms rather than solely in rupees.
Under the existing approach described in the report, taxable gains are calculated in rupees. If the rupee depreciates against the dollar during an investment period, an overseas investor’s return measured in dollars may be lower than the rupee-denominated gain used for Indian tax purposes.
A currency-adjusted calculation could change how taxable gains are measured, but the proposal remains under consideration, and its potential design or eligibility conditions have not been announced.
Any such change would require clarity on conversion rates, calculation dates, eligible investors and how the rules would interact with existing tax provisions.
What Investors and Businesses Should Know
Potential changes to LTCG taxation could affect investment planning, portfolio decisions and financial reporting. Investors should avoid making decisions based solely on reports of a possible policy revision.
Businesses and investors with complex tax obligations may benefit from professional tax optimization guidance to understand their current obligations and assess the implications of any officially announced changes.
For now, the key points are straightforward:
The government is reportedly reviewing the LTCG framework.
Foreign investor outflows are part of the broader policy discussion.
Dollar-based capital gains calculations have reportedly been considered.
No formal decision to reduce, restructure or abolish the tax has been announced.
Policy Decision Remains Pending
The reported review signals ongoing discussion about how India taxes long-term equity gains and how its framework compares with other markets. However, the final direction, timing and scope of any change remain uncertain.
Until the government issues an official announcement, investors should rely on the tax rules currently in force rather than assume that a reduction or exemption is imminent.