LTCG tax removal on the table? FM Sitharaman says Budget consultations will hear investors’ views

Finance Minister Nirmala Sitharaman has indicated that the government will hear investor views on removing the long-term capital gains (LTCG) tax during Budget consultations, bringing equity taxation back into focus as foreign portfolio investors continue to withdraw money from Indian markets.

Speaking at the Bloomberg New Economy Forum in New Delhi on Tuesday, Sitharaman said investors, both Indian and foreign, had raised questions about LTCG tax, the securities transaction tax (STT) and whether different asset classes should receive similar tax treatment.

Her remarks come amid calls for changes to India's equity taxation regime, including a proposal from SBI Research to abolish LTCG tax on equities and extend the holding period to two or three years to encourage more durable capital inflows.

However, the finance minister's comments do not amount to an announcement that the government intends to scrap the tax. In a parliamentary reply on July 20, Minister of State for Finance Pankaj Chaudhary said there was no proposal under consideration to abolish LTCG tax for domestic or retail investors.

LTCG tax removal: What did Nirmala Sitharaman say?

Sitharaman acknowledged that the taxation of equity investments had become a subject of discussion among domestic and overseas investors. She said the government was open to hearing different perspectives during the Budget consultation process.

"LTCG, a lot of people are commenting on, both Indian and foreign investors," she said. “This debate on STT in market and question of treating all asset classes similarly, there is a lot of debate. It is healthy to have this debate.”

The remarks bring two related questions into focus: whether the government should reconsider the tax on long-term equity gains and whether the taxation of different investment products should be aligned more closely.

LTCG tax applies to qualifying capital gains from assets held beyond the prescribed period. STT, by contrast, is levied on specified securities transactions. Any changes to either tax would have implications for investors and the cost of participating in financial markets.