A lot of domestic institutional as well as retail investors who invest in equities pay capital gains tax on their earnings from such investments. Depending on the holding period of the asset, they pay Short-Term Capital Gains (STCG) tax and Long-Term Capital Gains (LTCG) tax.
In the same context, Rajya Sabha member Neeraj Shekhar asked the Finance Ministry in a query dated July 28, 2026, whether the government is contemplating to scrap LTCG tax on equities for domestic institutional and retail investors during the current fiscal year (FY 26-27) to boost market sentiment and to attract investments to boost Gross Domestic Product (GDP).
Shekhar also asked whether the Finance Ministry had recently scrapped LTCG tax for foreign investors and whether it was considering extending a similar benefit to domestic institutional and retail investors during the current financial year.
Is the government planning to remove LTCG tax on equities for domestic investors?
Pankaj Chaudhary, Minister of State, Finance Ministry, denied scrapping LTCG tax on equities for retail investors. The minister said that there is no such proposal under consideration.
“Tax policies, including capital gains tax rates, are reviewed periodically as part of the annual budgetary process after taking into consideration macro-economic parameters,” the Ministry clarified.
Has the government scrapped LTCG tax for foreign investors recently?
Responding to the query, Chaudhary said that there is no such proposal under consideration.
Adding further, Chaudhary said, “Through the Income-tax (Amendment) Ordinance, 2026, the government has only rationalised the tax treatment applicable to investments by Foreign Portfolio Investment (FPIs) only in Government Securities (G-Secs), by exempting such investments from income tax on any interest or capital gain.”
The exemption is applicable, w.e.f., April 1, 2026, i.e., the exemption will apply to any interest or capital gains arising to FPIs on or after April 1 in respect of investments in G-Secs, the minister said.
Is Section 87A tax rebate available on any type of capital gains income- long or short - of any asset?
Section 112A(6) stipulates that the rebate shall be allowed only after reducing LTCG under Section 112A from total income, and this restriction applies solely to LTCG exceeding Rs 1,25,000. Budget 2025 explicitly stated that Section 87A rebate is not available for LTCG and STCG or any special rate income from FY 2025-26 onwards.
The explanatory memorandum to Budget 2025 said:
From assessment year 2026-27 onwards, for an assessee, being an individual resident in India whose income is chargeable to tax under the sub-section (1A) of section 115BAC, it is proposed to–
(i) enhance the limit of total income for rebate in clause (a) and (b) of first proviso under Section 87A, on which the income-tax is payable as per the rates of income-tax under sub-section (1A) of Section 115BAC, from Rs 7,00,000 to Rs 12,00,000 and the limit of rebate in clause (a) of first proviso to Section 87A from Rs 25,000 to Rs 60,000.
ii) rationalise the first proviso to Section 87A by inserting a new proviso so as to provide that the deduction under the first proviso, shall not exceed the income tax payable as per the rates provided in sub-Section (1A) of Section 115BAC.
5. Further, as mentioned in para 4 above, such a rebate of income tax is not available on tax on incomes chargeable at special rates (for e.g.: capital gains u/s 111A, 112 etc.).
