Demand to Make Capital Gains up to ₹2 Lakh Tax-Free, Cut STT and STCG Rates
Mumbai (Economy India): Ahead of the Union Budget 2026, stock market investors and financial experts have outlined a clear wishlist for the government, with taxation reforms emerging as the top priority. With retail participation in Indian equity markets rising sharply over the past few years, investors believe Budget 2026 is a crucial opportunity to rationalise capital gains tax, reduce transaction costs, and simplify tax rules across asset classes.
Market participants argue that easing the tax burden on investors will not only improve returns but also enhance liquidity and strengthen domestic participation at a time when foreign portfolio investors (FPIs) remain volatile.
Higher LTCG Tax Exemption: Proposal to Raise Limit to ₹2 Lakh
Currently, long-term capital gains (LTCG) on equities are exempt from tax up to ₹1.25 lakh per financial year. Any gains beyond this threshold are taxed. Investors and tax experts believe this exemption limit no longer reflects current market realities, inflation levels, or the growing size of retail portfolios.
Key investor expectations:
- Increase LTCG tax-free limit from ₹1.25 lakh to ₹2 lakh
- Provide greater relief to middle-class and salaried investors
- Encourage long-term investing over short-term trading
Experts say a higher exemption would incentivise disciplined, long-term investment behaviour and promote wealth creation rather than speculative activity.
Call for Reduction in STT and STCG to Lower Trading Costs
Another major concern for market participants is the rising cost of transactions due to high taxation. In the previous budget, the government increased Securities Transaction Tax (STT) on futures and options (F&O), which has significantly raised trading costs.
Market demands include:
- Reduction in STT rates, especially in the cash market
- Rationalisation of short-term capital gains (STCG) tax
- Measures to revive trading volumes and improve market liquidity
According to brokerage firms and traders, high transaction taxes discourage participation and reduce volumes. A moderation in STT and STCG could attract more retail investors and improve overall market depth.
Uniform Holding Period and Return of Indexation Benefits
🔹 Single Holding Period Across Asset Classes
At present, the definition of “long term” varies across asset classes such as equities, debt, gold, and real estate. This creates confusion and complicates tax calculations.
Budget 2026 expectations:
- Introduce a uniform 12-month holding period for all asset classes
- Simplify capital gains taxation
- Improve transparency and ease of compliance
🔹 Revival of Indexation Benefits
The removal of indexation benefits on assets such as real estate and gold has disappointed long-term investors, as it reduces protection against inflation.
Experts suggest:
- Reintroducing indexation benefits for non-financial assets
- Alternatively, reducing the long-term tax rate from 12.5% to 10%
This would provide inflation-adjusted relief and make long-term investments more attractive.
Stronger Investment Can Support the Economy
Tax experts believe that a more investor-friendly capital gains tax framework in Budget 2026 could redirect household savings towards equities. At a time when FPIs may continue to remain cautious, strong domestic inflows could play a critical role in stabilising Indian markets.
The government, however, faces the challenge of balancing revenue considerations with investor expectations. Budget 2026 is therefore seen as a decisive moment that could shape the future trajectory of India’s capital markets and investor sentiment.
(Economy India)
