As Budget 2026 approaches, investors and tax experts are calling for refinements to India’s capital gains tax regime. Key demands include a reduction in the Long Term Capital Gain (LTCG) rate, higher exemption limits, uniform holding periods across asset classes, and restoration of indexation benefits.
They believe that such measures are crucial to easing tax burdens, protecting long-term savers, and sustaining investor confidence.
Investors seek 10% LTCG, higher exemptions and uniform holding periods
A uniform long-term capital gains tax rate of 12.5 percent was implemented in July 2024 across all asset classes, covering gains from mutual funds, real estate, equities, gold, and bonds with different holding periods.
Tax experts say the government should cut the LTCG rate from 12.5 percent to 10 percent maintaining that the move would directly increase investors’ net profits.
“Reducing the LTCG rates further to 10 percent shall not only reduce the tax liability for taxpayers but also attract investments back to India,” an tax expert said.
However, many expect Budget 2026 to instead raise the tax-free LTCG threshold or simplify holding period rules. For instance, LTCG rate applies on the sale of equity mutual funds held over one year on gains exceeding Rs 1.25 lakh, while real estate has a holding period of two years.
According to another tax expert, “Raising the annual exemption limit from Rs 1.25 lakh to Rs 2 lakh- 2.5 lakh would likely provide relief to smaller retail investors while maintaining tax buoyancy for the government.”
Another tax expert believes that there is a scope for simplification and synchronisation of the period of holding asset classes. She says that it would be helpful and beneficial for taxpayers if the same financial assets could be brought at par with the period of holding.
Another tax expert says otherwise. He believes that India’s capital gains tax environment is favourable and yet balanced, given that countries like Japan (20.31%), the UK (up to 24%) have high market capitalisation in capital gains transactions, as well as impose higher tax rates.
Restore indexation benefits
The market expects that the Budget 2026 will roll back indexation benefits for long-term savings instruments, citing that such a move has instead increased the real tax burden.
“The budget in 2024 took away indexation benefits, which remain a significant pain point for real estate and gold investors. Reintroducing indexation for senior citizens or for primary residential properties would provide much-needed relief to long-term savers who rely on these assets for retirement security,” she said.
According to the Central Board of Direct Taxes (CBDT), indexation is a process by which the cost of acquisition or improvement of a capital asset is adjusted against inflationary rise in the value of the asset.
Budget 2024 largely removed the indexation benefit on LTCG for most assets, including listed shares, equity mutual funds, business trusts, gold, bonds, and properties acquired after July 23, 2024. It was replaced with a uniform 12.5 percent tax rate.
“The primary expectation from the market is the restoration of indexation for debt mutual funds held for more than 36 months. These funds are currently taxed at marginal slab rates, which can reach 30% or higher depending on the investor’s income. Restoring the 20% tax rate with indexation would align debt funds with their historical role as a long-term savings vehicle and help improve liquidity in the corporate bond market,” he said.
