Finance Minister Nirmala Sitharaman has indicated the government is open to reviewing the long-term capital gains (LTCG) tax structure following investor feedback. This comes amid heavy foreign portfolio investor outflows exceeding ₹3 lakh crore in 2026. The signal marks a potential policy pivot as the finance ministry prepares for the 2027-28 budget.
Finance Minister Nirmala Sitharaman has signaled that the government is willing to consider feedback regarding the current long-term capital gains (LTCG) tax regime. During ongoing consultations, the Minister acknowledged that the administration is hearing concerns from both domestic and foreign institutional investors. This public acknowledgment marks a notable shift in tone as the government begins the early stages of preparing for the Union Budget for the 2027-28 fiscal year.
The interest in reviewing equity taxation comes after a year of heavy selling by Foreign Portfolio Investors (FPIs). In 2026, FPIs have withdrawn over ₹3 lakh crore from Indian equities. This trend has been influenced by broader global factors, including rising US bond yields, a stronger US dollar, and volatile crude oil prices. As these outflows put pressure on market stability, the demand for a more competitive tax framework has gained momentum among market participants.
Recommendations for Policy Reform
Industry bodies and research firms have actively proposed paths for reform. Notably, SBI Research has recommended that the government consider abolishing the 12.5% LTCG tax on equities. The report suggested that rather than the current tax rate, the government could instead extend the required holding period for long-term investments to two or three years to encourage stability. Proponents argue that such a change would help attract long-term capital while potentially discouraging short-term speculative trading.
While the government has shown openness to dialogue, no immediate changes have been announced. The current 12.5% rate was established in July 2024 and was retained in the 2026 budget. It is important for investors to note that policy discussions are currently part of the early budgetary process, which concludes in early 2027. The finance ministry has not commented on specific policy outcomes at this stage.
Investor Monitorables
For investors, the potential for tax policy shifts is a key factor to track. While a reduction or removal of the LTCG tax could theoretically improve net returns, any speculation on tax changes can lead to short-term market volatility. Furthermore, the final decision will likely weigh the goal of attracting foreign investment against the government's need for stable tax revenue. The most important monitorable for shareholders will be official updates and statements from the finance ministry leading up to the Union Budget presentation on February 1, 2027.