Government Reviews LTCG and STT — But No Tax Change Yet

Quick Answer: The Central Government has begun reviewing long-term capital gains (LTCG) tax and securities transaction tax (STT), seeking views from investors, intermediaries and tax experts. Finance Minister Nirmala Sitharaman says she is open to hearing views, but no tax change has been announced. Any change would most likely come via the Budget and Parliament, not a review alone.

What has actually happened

On 27 October 2026, The Economic Times reported that the Central Government has begun a review of LTCG tax and STT, seeking views from investors, intermediaries and tax experts, amid heavy foreign-investor selling from Indian equities in 2026. A review is not a rate cut, a rate hike, or a new exemption. It is the early stage of a policy conversation, in which officials listen, weigh arguments, consider revenue, and decide whether to propose anything at all. On 13 October 2026, Union Finance Minister Nirmala Sitharaman told the Bloomberg New Economy Forum in New Delhi she was open to hearing views on LTCG tax and STT, called the debate healthy, and said it was too early to comment on any possible change. That debate includes whether India should levy one of the two taxes rather than both, and whether asset classes should be treated similarly. Neither idea has been adopted as policy. Budget 2027–28 consultations were reported to have begun on 12 October 2026. If the review leads anywhere, the most likely route is a proposal in that Budget, followed by legislation. Until then, every existing rate and exemption stays as it is.

What LTCG tax is, in plain language

Capital gains tax is the tax on the profit from selling an investment for more than you paid. "Long-term" refers to how long you held it. For listed equities and equity mutual funds, the current background rules — unchanged today — are: Holding period for long-term treatment: more than 12 months. LTCG tax rate: 12.5% on annual long-term gains above Rs 1.25 lakh, plus surcharge and cess where applicable. The first Rs 1.25 lakh of such gains in a year is exempt from this tax. LTCG is therefore not charged on your full sale value, but on the gain — and only on the part above the exemption limit, as the illustration below shows. Short-term gains differ: for listed equities held 12 months or less, the current rate is 20% on the gain, with no equivalent Rs 1.25 lakh exemption. That gap is one reason holding period matters under the current rules — but it is not a reason to change an investment decision on rumour alone.

What STT is, and why you already pay it

Securities transaction tax is a separate tax, charged on the transaction itself rather than on profit, when listed securities are bought or sold through a recognised stock exchange. The current background rate for equity delivery trades is: STT on equity delivery trades: 0.1% of the transaction value, on both the buy side and the sell side. Because STT is charged on transaction value, you pay it whether you profit or lose. It is collected at transaction time, typically shown on your contract note. Derivatives differ. Per ET Now's report of Budget 2026 changes effective 1 April 2026: Futures STT: from 0.02% to 0.05%. Options STT on premium: from 0.10% to 0.15%. Those are reported Budget 2026 changes, already in effect — not news from this week's review.

Why some investors say paying both feels like double taxation

The complaint reported in coverage is straightforward: an investor pays STT on both the buy and sell transactions, then, on a long-term gain above the exemption, also pays LTCG tax on that gain. Critics call this being taxed twice on the same journey: once for transacting, once for profiting. The counter-argument is revenue. The taxes fall on different things — transaction and gain — and each raises substantial revenue. Reported collections context, attributed to the 27 October 2026 report summary: LTCG collections: Rs 1.29 lakh crore in FY 2024–25. STT collections: Rs 57,522 crore in FY 2025–26. Those figures show why any change is a fiscal decision, not just a market-sentiment decision. Reducing either tax would leave a revenue gap to fill or accept. That trade-off — possible benefits for investment against a certain cost to the exchequer — is what a review weighs. Expert suggestions reported in coverage include reducing LTCG, reviewing STT rates, and relief for long-term investors. These are commentators' suggestions, reported in the press — not decisions, proposals, or promises from the government.

What a "review" actually means, step by step

Policy reviews in India usually follow a predictable sequence: Consultation: views sought from investors, intermediaries, tax experts and others. Internal assessment: views weighed against revenue needs, market effects, feasibility and fairness across asset classes. Budget proposal: any change typically proposed in the Union Budget. Legislation: the proposal must pass Parliament and become law before it changes what taxpayers pay. Effective date: the law specifies when the new rule applies; it does not rewrite tax already due under the old rules. The process is at the first stage: no proposal published, no draft law introduced, no effective date. Anyone claiming to know the new rate is speculating.

A worked illustration using today's rules

The illustration below uses current rules only — an educational example, not advice, assuming no change from the review. Suppose an investor makes a long-term gain of Rs 2,00,000 on listed shares in a year. The calculation is: Total long-term gain in the year: Rs 2,00,000. Less the annual exemption: Rs 1,25,000. Taxable long-term gain: Rs 75,000. LTCG tax at 12.5% on Rs 75,000: Rs 9,375 before surcharge and cess. Adding 4% cess on Rs 9,375: Rs 375. Total: Rs 9,750, before any surcharge that may apply in a reader's own case.

Now compare a short-term gain of the same size, Rs 2,00,000, taxed at 20%: Short-term gain: Rs 2,00,000. STCG tax at 20%: Rs 40,000 before cess. The contrast is stark, but it is between two existing rules, not a prediction. It excludes STT, paid on the underlying transactions in both cases, and surcharge, which depends on individual circumstances. Real returns involve more variables — loss set-offs, asset types, income levels — which is why personal decisions need a qualified adviser, not a single illustration.

What readers should — and should not — do now

The most useful response is also the least dramatic: Do not make trades on rumours. No rate change has been announced, so restructuring holdings in anticipation of a cut is a bet on an outcome that may never happen. Keep holding-period records. Purchase and sale dates, contract notes, and fund statements determine whether a gain is long-term or short-term. Good records matter regardless of what any review decides. Do not assume a lower future rate. Evaluate any planned sale under today's rates — the only ones in force. Check personal decisions with a tax adviser. Income level, loss set-offs, residential status, and other assets change the answer. Watch for official sources. A real change will appear in the Budget speech, the Finance Bill, or a government notification — not in a forwarded message. Do not forward unverified claims about new rates.

What could happen next — and what will not

Plausible outcomes, all to be held lightly until an official proposal appears, are: no change, if revenue needs outweigh the case for a cut; a targeted change, such as revised STT rates or relief for long-term investors, as some commentators suggest; a structural change, moving to one tax rather than both, an idea debated but far from decided; or a change in a later Budget. No change comes by announcement alone. Tax rates change through law; a minister open to hearing views is inviting debate, not changing the law.

The bottom line

The government is listening on LTCG and STT — notable, given how much revenue both taxes raise and how long investors have debated paying both. But listening is not legislating, and no tax change has been announced. Until a Budget proposal and a law say otherwise, the current rules — 12.5% LTCG above Rs 1.25 lakh a year, 20% STCG, 0.1% STT on delivery trades — remain in force. Understand those rules, keep clean records, and wait for an official proposal. This article is for educational purposes only and is not financial advice. Please consult a SEBI-registered investment adviser for personalized guidance. Investments are subject to market risk.