While suggesting a complete abolition of the Long Term Capital Gains (LTCG) tax on equities, the industry chamber mooted increasing the holding period from 12 months to 18-24 months for an investment to be considered long term.
This would ensure that exemption is available to genuine investors, according to PHDCCI’s recommendation submitted to the Central Board of Direct Taxes (CBDT).
Highlighting that with Securities Transaction Tax (STT) and capital gains tax, there is “double taxation” on investments in equities, PHDCCI said the rationalisation could help mitigate the issue.
The industry chamber suggested a reduction of tax on short-term capital gains (STCG) from 20 per cent to 10 per cent, or a reduction of STT rates.
“The rationalisation of tax rates (with other measures) would play an important role in retaining foreign capital in India, reducing outflows and attracting further investments,” it added.
Currently, a 12.5 per cent tax, plus surcharge and cess, is levied on LTCG on listed equity/equity MFs where gains exceed Rs 1.25 lakh. Also, such investments must be held for more than 12 months from the date of acquisition to qualify as a long-term capital asset.However, if such assets are sold within 12 months of purchase, a 20 per cent tax is levied on short-term capital gains (STCG) earned.
“Taxing the same economic activity through multiple levies can discourage investment and wealth creation. A more balanced tax regime can encourage investment, improve household wealth and spending power, stimulate economic activity, and generate additional revenue through GST and other indirect taxes,” PHDCCI said.
The government has budgeted to collect Rs 73,700 crore from STT in the current fiscal, up from Rs 57,522 crore collected in the last fiscal.
Between April 1 and October 14 this fiscal, STT mop-up swelled about 52 per cent to Rs 46,840 crore.
Foreign Portfolio Investors (FPIs) have pulled out a record Rs 3.08 lakh crore (USD 32.73 billion) from Indian equities during January-September 2026, — nearly double the Rs 1.66 lakh crore withdrawn in entire calendar year 2025.
Rationalising these tax rates could improve India’s investment appeal, PHDCCI said.
Industry chambers are currently in the process of sending their recommendations to the Finance Ministry on equity market taxation.
Finance Minister Nirmala Sitharaman had earlier this month said that a lot of comments have been coming in from investors along with a debate around long-term capital gains tax and STT.
“… It’s healthy to have this debate, and I will be keenly hearing them,” she had said on October 13.
Nangia Global, Director, Naitik Doshi said India’s equity capital gains tax regime has undergone several changes over the years, from the LTCG exemption introduced in 2004, to its reintroduction in 2018, and the subsequent increase in LTCG and STCG tax rates to 12.5 per cent and 20 per cent, respectively, in July 2024, alongside STT.
“As the government revisits the framework, greater predictability and rationalisation of the overall tax burden would be welcome. A particularly meaningful reform would be to extend foreign-currency-based capital gains computation to eligible FPIs investing in listed equities, similar to the mechanism available to specified non-residents for shares and debentures of Indian companies.
“This would help distinguish genuine investment returns from gains arising solely due to rupee depreciation, improve tax neutrality and strengthen India’s attractiveness as a destination for global capital,” Doshi said.