The Government has clarified that there is currently no proposal under consideration to abolish the Long-Term Capital Gains (LTCG) tax on equity investments for domestic or retail investors, despite recent concerns over differential tax treatment between foreign and Indian investors.
The clarification came in response to an Unstarred Question raised in the Lok Sabha on July 20, 2026, seeking details on LTCG tax collections, the recent exemption granted to Foreign Portfolio Investors (FPIs), and whether similar relief would be extended to Indian investors.
LTCG Tax Collections from Equity Transactions
The Ministry of Finance provided data showing substantial growth in revenue generated from LTCG tax on equity transactions:
| Assessment Year | Revenue from LTCG Tax on Equity Transactions |
|---|---|
| AY 2024-25 (FY 2023-24) | ₹72,249 Crore |
| AY 2025-26 (FY 2024-25) | ₹1,29,158 Crore |
The Government noted that return filing for AY 2026-27 and AY 2027-28 is still underway, and therefore corresponding revenue figures are not yet available.
Why FPIs Received LTCG Tax Exemption
A key concern raised in Parliament related to the Government's decision to exempt certain Foreign Portfolio Investors from LTCG tax while domestic investors continue to pay tax at 12.5%.
Responding to the query, Minister of State for Finance Shri Pankaj Chaudhary clarified that the 12.5% LTCG tax rate applicable to domestic investors remains the same as that applicable to FPIs investing in equities .
However, through the Finance-tax (Amendment) Ordinance, 2026 , the Government introduced a special exemption for FPIs investing in Government Securities (G-Secs) . Under this amendment, income arising from interest or capital gains on eligible Government Securities investments made by FPIs on or after April 1, 2026, is exempt from tax.
Government's Rationale Behind the Exemption
According to the Finance Ministry, the exemption was introduced to enhance India's attractiveness as a destination for global capital and align the country's tax framework with international practices.
The Government stated that the move aims to:
- Attract long-term foreign investment into Government Securities;
- Improve competitiveness compared with other major jurisdictions;
- Facilitate stable inflows of durable foreign capital;
- Encourage participation by pension funds, insurance companies and Sovereign Wealth Funds (SWFs);
- Rationalise the tax treatment of FPI investments in debt markets.
The Ministry emphasized that the exemption is limited to investments in Government Securities and does not apply broadly to equity investments.
No LTCG Tax Relief for Retail Investors
Addressing concerns over a perceived disparity between foreign and domestic investors, the Government categorically stated:
"At present, there is no such proposal under consideration."
This response was given to a specific question on whether the Government intends to scrap LTCG tax for retail and domestic investors to revive market sentiment, protect household savings and create a level playing field between Indian and foreign investors.
Tax Policies Subject to Periodic Review
While ruling out any immediate relief, the Finance Ministry noted that tax policies, including capital gains taxation, are reviewed periodically through the annual Budget process and legislative amendments after considering prevailing macroeconomic conditions.
For now, retail investors will continue to be subject to the existing LTCG tax regime on equity investments, while the recently announced exemption remains restricted to eligible FPIs investing in Government Securities.
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