Centre May Cut Long-Term Capital Gains Tax on Stocks to Boost Market Confidence

The central government may soon cut or remove the long-term capital gains tax on stocks to attract more local and foreign investors. SBI Research reports that the revenue loss for the government will stay between forty thousand and fifty thousand crore rupees in the 2027-28 financial year if this tax is removed. This change could also lower the country's gross domestic product growth by 0.1 to 0.2 percent, which is a manageable hit for the government right now.

Market Pressures

Stock market returns have slowed down recently, with the Nifty average return dropping to 0.5 percent over the past three years. Foreign investors pulled out 4.8 lakh crore rupees during this period, and companies are also facing slow wage growth. To balance the lost tax money, SBI Research suggests raising the securities transaction tax by 50 percent, which could bring in an extra 45,000 crore rupees in the 2027-28 fiscal year. The Securities and Exchange Board of India has already given official recommendations to the government to reduce this tax and even remove the 12.5 percent long-term capital gains tax for foreign portfolio investors completely.

Potential Changes

Options on the table include changing how foreign investors calculate profit so they pay tax based on US dollars instead of Indian rupees, which would protect them from currency drops. HDFC Securities MD and CEO Dhiraj Relli and other experts view these upcoming steps as a very positive move for the stock market. Union Finance Minister Nirmala Sitharaman recently stated that discussions around this tax are healthy and the government is open to hearing these ideas.

Context

Long-term capital gains taxes apply to profits made from selling assets held for over a year, while stock regulators and major financial institutions regularly advise governments on tax policy to keep national markets competitive against other global trading hubs.