Finance Minister's remarks on capital gains tax spark debate among market experts

Union Finance Minister Nirmala Sitharaman has kept the door open for discussions on the long-term capital gains tax and securities transaction tax, though she noted it is premature to comment on possible changes with Union Budget preparations underway. Speaking at the Bloomberg New Economy Forum, Sitharaman responded to questions about these levies by stating that while views are welcome, the government is not ready to announce measures at this stage. Investors and experts have pushed for the removal of LTCG ever since its reintroduction, but the government appears reluctant to make alterations.

Tax Rates And Rules

The government raised the LTCG tax rate on listed equities and equity mutual funds to 12.5% from 10% in 2024, while also increasing the exemption threshold from one lakh rupees to one lakh twenty-five thousand rupees per financial year. Securities Transaction Tax applies to every trade in equities and derivatives, impacting short-term, intraday, and derivatives traders, whereas LTCG affects long-term investors. STT itself was introduced in India in October 2004, and Union minister Pankaj Chaudhary stated in the Lok Sabha earlier in July that no proposal to scrap LTCG for domestic or retail investors was under consideration.

Expert Opinions

Market veterans Shankar Sharma and Rohit Srivastava offered contrasting views on how the taxation structure should evolve. Sharma argued that the Finance Minister will likely not remove capital gains tax entirely, but might reduce it for overseas investors, adding that India needs foreign capital to fund its current account deficits. Srivastava suggested that if the government worries about revenue, it could reduce the tax in stages from 12.5% down to zero, and argued that any removal should apply equally to domestic and foreign investors to maintain a level playing field.

Context

Capital gains taxes and transaction levies form a major part of how governments raise revenue from financial markets while attempting to balance domestic participation with foreign capital inflows. Debates around these rates typically intensify ahead of national budget planning sessions as traders and institutional investors lobby for changes to boost market activity.