LTCG Tax on Shares and Mutual Funds 2026: Will Government Remove It? Check Current Rates and Exemptions

LTCG Tax Latest News, October 14, 2026: Investors in the Indian stock market are closely watching discussions about a possible change in Long-Term Capital Gains (LTCG) tax on listed equity shares and equity mutual funds.

The debate has gained attention after Finance Minister Nirmala Sitharaman reportedly indicated that the government is willing to consider views from stakeholders regarding the taxation of long-term investments.

The development follows a proposal from SBI Research recommending the removal of LTCG tax on equity investments to encourage long-term participation in Indian financial markets.

However, the government has not announced the abolition of LTCG tax, and the existing tax provisions continue to apply.

Here is a detailed explanation of the proposal, current LTCG and STCG tax rates, the ₹1.25 lakh annual exemption and important rules for mutual fund investors.

Will LTCG Tax on Equity Investments Be Removed?

The possibility of eliminating LTCG tax has emerged as a subject of discussion rather than an officially approved policy.

According to the report, Finance Minister Nirmala Sitharaman said the government was open to hearing the views of investors and other stakeholders on the matter.

Her comments have attracted attention because capital gains taxation can influence investment decisions, portfolio management and long-term financial planning.

However, being open to discussion does not necessarily indicate that the government intends to remove the tax.

Any change would require an appropriate legislative or regulatory process.

Until such changes are formally announced and brought into effect, investors must continue calculating their tax liabilities under existing rules.

What Has SBI Research Proposed?

SBI Research reportedly recommended removing LTCG tax on equity investments in its Ecowrap report.

The proposal aims to encourage investors to hold shares for longer periods and support stable capital flows into the Indian stock market.

The report also suggested reconsidering the minimum holding period required for an equity investment to qualify as long-term.

One suggestion was to increase the holding period to two or three years.

Such a change would represent a significant departure from the current framework, under which eligible listed equity shares and equity-oriented mutual funds generally qualify for long-term treatment after being held for more than 12 months.

These recommendations remain proposals, not changes to the law.

LTCG Tax Rate in India 2026: How Much Do Investors Pay?

Under the current framework, eligible long-term capital gains from listed equity shares, equity-oriented mutual funds and qualifying business trust units are taxed under Section 112A.

The applicable LTCG rate is 12.5% on eligible gains exceeding ₹1.25 lakh during a financial year.

The exemption threshold applies to the aggregate qualifying gains, not separately to each share, fund or transaction.

Applicable surcharge and health and education cess may increase the final liability.

LTCG vs STCG Tax Rates in 2026

These rates apply to qualifying transactions subject to the relevant conditions, including Securities Transaction Tax (STT) requirements and statutory exceptions.

Not all mutual funds or ETFs are taxed under these equity-specific provisions.

LTCG Tax Calculation: How Much Tax on ₹3 Lakh Profit?

Suppose an investor earns ₹3 lakh in qualifying long-term capital gains from listed shares and equity-oriented mutual funds during a financial year.

The calculation would be:

Example: ₹3 lakh LTCG

Assumes the entire gain qualifies under Section 112A, with no capital-loss adjustments, surcharge or other special circumstances.

The example demonstrates that the 12.5% rate is not charged on the entire ₹3 lakh gain. It applies only to the portion exceeding the ₹1.25 lakh annual exemption.

Calculate LTCG Tax on Your Share Market Profit

Total qualifying LTCG in one financial year (₹)

Taxable gain after exemption

₹1,75,000

Estimated tax including 4% cess

₹22,750

Illustrative Section 112A calculation, assuming full eligibility for the ₹1.25 lakh threshold. Excludes surcharge, loss set-offs, special grandfathering rules and other individual tax adjustments.

Does the ₹12 Lakh Income Tax Rebate Apply to LTCG?

The new income-tax regime provides relief on eligible ordinary income up to the applicable rebate threshold.

However, special-rate capital gains covered by Section 112A do not receive the same Section 87A rebate treatment.

This means an investor should not assume that qualifying for the rebate on ordinary income automatically eliminates tax on equity capital gains.

The tax calculation must distinguish between normal slab-rate income and income subject to special tax rates.

Investors with multiple sources of income may need to calculate their liabilities separately before determining their total tax payable.

Important Rule for SIP Mutual Fund Investors

Systematic Investment Plans (SIPs) allow investors to purchase mutual fund units at regular intervals.

However, each SIP instalment is treated as a separate purchase for determining the holding period.

For example, an investor who starts a monthly SIP in January 2025 will acquire additional units every month.

If some units are redeemed in October 2026, the holding period must be calculated according to the acquisition date of the units being sold.

Some units may qualify as long-term holdings, while others may still fall within the short-term category.

Mutual fund redemptions generally follow the applicable first-in, first-out identification rules for units.

Therefore, investors should review the capital gains statement provided by their mutual fund platform or registrar before filing their tax returns.

Can Capital Losses Reduce LTCG Tax?

Capital losses can help reduce taxable capital gains, subject to the Income Tax Act's set-off provisions.

The broad rules are:

Eligible unadjusted capital losses can generally be carried forward for up to eight assessment years, subject to applicable conditions, including timely filing of the required income-tax return.

However, losses cannot be adjusted indiscriminately against every type of income.

Investors should also consider whether particular gains or losses fall under special tax provisions.

What About Gold ETFs, Debt Funds and International Mutual Funds?

The equity LTCG framework does not automatically apply to every investment labelled as a mutual fund or ETF.

Taxation can differ for gold ETFs, international funds, debt-oriented mutual funds and other investment categories.

Relevant factors may include the fund's underlying assets, acquisition date, holding period and specific tax provisions.

Consequently, investors should not apply the 12.5% rate and ₹1.25 lakh exemption to all fund redemptions without checking the applicable classification.

This distinction is especially important for investors maintaining portfolios containing both domestic equity funds and non-equity investments.

STT and Other Costs Investors Should Consider

Securities Transaction Tax is another cost associated with eligible securities transactions.

For delivery-based equity share transactions, STT generally applies at 0.1% on both purchase and sale.

For redemption or sale of equity-oriented mutual fund units to the fund, the applicable STT rate is generally 0.001%.

STT is not deductible as an expense when calculating capital gains under the relevant provisions.

Other transaction costs, brokerage charges and fund exit loads may also affect the investor's net proceeds, subject to their respective tax treatment.

Investors expecting substantial taxable gains should additionally review whether advance tax obligations apply.

Will LTCG Tax Changes Be Announced in the Next Budget?

The Finance Minister's reported willingness to consider stakeholder feedback has renewed speculation about possible changes to equity taxation.

However, no official proposal has been confirmed for abolishing LTCG tax in an upcoming Budget.

The government could consider multiple approaches, including retaining the existing framework, revising holding periods, adjusting exemption thresholds or making no changes.

Any specific outcome would be speculative until an official announcement is made.

LTCG Tax 2026: Final Takeaway for Investors

The possibility of removing LTCG tax on shares and equity mutual funds has attracted attention following SBI Research's proposal and comments attributed to Finance Minister Nirmala Sitharaman.

For now, the existing tax rules remain applicable.

Eligible long-term equity gains exceeding ₹1.25 lakh in a financial year are generally taxed at 12.5%, while qualifying short-term equity gains are taxed at 20%, plus applicable cess and surcharge.

Investors should continue maintaining accurate records of purchase dates, sale values, capital losses and transaction costs.

Any future relief will depend on an official government decision rather than recommendations or public discussions.

Disclaimer: This article provides general tax information based on the rules and reports described as of October 14, 2026. Tax treatment depends on individual circumstances, investment classification and applicable legislation. Consult a qualified tax professional before making investment or tax-planning decisions.