India Confirms No Long-Term Capital Gains Tax Relief for Domestic Equity Investors

India Rules Out LTCG Tax Relief for Domestic Equity Investors

The Government of India has confirmed that there is no proposal to abolish the Long-Term Capital Gains (LTCG) tax on equities for domestic investors. The clarification was provided in Parliament by the Ministry of Finance on 20 July 2026.

This announcement comes after the government recently exempted Foreign Portfolio Investors (FPIs) from LTCG tax on investments in government securities, leading to speculation that similar benefits might be extended to Indian investors. The Finance Ministry has clarified that the exemption is strictly limited to government securities held by eligible FPIs.

Current LTCG Tax Remains Unchanged

Domestic and retail investors will continue to pay 12.5% Long-Term Capital Gains (LTCG) tax on eligible long-term gains from equity investments.

According to Minister of State for Finance Pankaj Chaudhary, the 12.5% tax rate for domestic investors is the same as the rate applicable to FPIs on equity investments. The recent tax rationalisation applies only to FPIs investing in government securities.

Why Was the FPI Tax Exemption Introduced?

The government introduced the exemption to encourage long-term foreign investment in India's government bond market. The objectives include:

• Attracting stable long-term foreign capital.
• Supporting the Indian Rupee.
• Increasing participation from pension funds, sovereign wealth funds, and insurance companies.
• Aligning India's tax policies with other global markets.

The exemption is effective from 1 April 2026.

Indian Stock Market Performance in 2026

Foreign Portfolio Investors have sold approximately US$28 billion worth of Indian equities during 2026 due to rising crude oil prices, a weakening rupee, and global uncertainties.

However, investor sentiment has improved in July, with FPIs purchasing nearly US$1.25 billion worth of Indian shares so far.

Meanwhile, the Nifty 50 Index has declined by approximately 7.2% in 2026, although domestic institutional and retail investors have continued supporting the market.

LTCG Tax Remains an Important Revenue Source

The government also emphasized that Long-Term Capital Gains tax continues to be a significant source of revenue.

• Assessment Year 2025–26: ₹1.29 trillion collected
• Previous Assessment Year: ₹722.49 billion collected

The sharp increase in collections demonstrates the importance of LTCG tax in India's fiscal framework.

What This Means for Investors

There is no change in the taxation of long-term equity investments for domestic investors. Individuals should continue to factor the 12.5% LTCG tax into their investment planning and long-term wealth creation strategies.

While the government is offering tax incentives to attract foreign investment into government securities, there are currently no plans to provide similar LTCG tax relief to domestic equity investors.

Disclaimer: This article is intended for informational purposes only and should not be considered financial or tax advice. Investors should consult a qualified financial or tax advisor before making investment decisions.