Budget 2027: LTCG Tax Cut Under Government Discussion

India's government is reportedly considering changes to long-term capital gains (LTCG) taxation ahead of Union Budget 2027-28, including a possible reduction in the current 12.5% rate and changes to the calculation of taxable gains for foreign portfolio investors.

According to an Indian Express report published on 26 October 2026, discussions include allowing foreign investors to calculate capital gains in US dollar terms rather than solely using rupee-denominated gains.

The proposals are reportedly being examined as policymakers assess subdued equity-market returns, investor sentiment and India's ability to attract foreign capital.

No tax reduction or new foreign-investor tax treatment has been formally announced.

What Is the Government Reportedly Considering?

The Indian Express investigation published on 26 October identifies two important possibilities.

The first is a reduction in the 12.5% long-term capital gains tax rate applicable to the investments under discussion.

The second is a potential change in the way foreign portfolio investors (FPIs) calculate taxable investment gains.

At present, currency movements can affect the difference between gains measured in rupees and returns experienced by foreign investors in their home currencies.

The reported proposal would examine whether taxable gains should instead be calculated with reference to US dollar values.

The details remain unresolved.

The reporting does not establish a new tax rate, a final eligibility framework or an effective date.

Why Is Capital Gains Tax Back on the Agenda?

The discussions come amid concerns about the experience of Indian equity investors.

The Indian Express reported that officials were worried about weak stock-market returns over approximately two years, particularly when combined with limited wage growth.

The report also highlighted substantial retail participation in Indian equities.

Citing Prime Infobase data, it stated that retail ownership of NSE-listed companies increased from 6.58% in March 2020 to 7.66% in June 2024, before declining to 7.12% in March 2026.

Meanwhile, CDSL demat accounts increased from 2.12 crore in March 2020 to 19.34 crore in September 2026.

These figures describe different measures of investor participation. The number of demat accounts is not the same as the number of unique investors.

They nevertheless illustrate why equity-market policy now matters to a broad population of households.

What Is the Current Capital Gains Tax Rate?

Under the current published Income Tax Department guidance, qualifying long-term capital gains from specified listed equity shares, equity-oriented mutual funds and business trust units attract a base tax rate of 12.5% on aggregate eligible annual gains exceeding ₹1.25 lakh, subject to applicable conditions.

Certain short-term gains from specified securities are taxed at a 20% base rate.

The actual liability can also depend on cess, surcharge, exemptions, investor status and the relevant legal provisions.

The Income Tax Department's capital gains guidance explains the prevailing framework.

A possible change to equity LTCG taxation would not necessarily change the treatment of every asset class.

Property, debt products and other investments may be subject to different conditions and exceptions.

Why Would Dollar-Based Taxation Matter?

Foreign investors often assess their returns in the currencies they use to fund investments and report performance.

Suppose an overseas investor purchases an Indian asset and its rupee price increases.

If the rupee depreciates against the US dollar during the holding period, the investor's dollar-denominated gain may be smaller than the gain calculated in rupees.

In some circumstances, a rupee-denominated gain may coexist with a dollar-denominated loss.

A tax system that calculates gains without fully reflecting currency movements can therefore produce outcomes that differ from the investor's economic return in foreign currency.

The Indian Express reports that policymakers are examining this issue as part of discussions on making Indian markets more attractive to overseas capital.

However, any eventual benefit would depend on the legal wording, eligible securities, exchange-rate methodology and applicable treaty provisions.

What Has Changed Since the Earlier Tax Review?

The debate is not entirely new.

Earlier this month, Finance Minister Nirmala Sitharaman publicly indicated that she was open to receiving views on LTCG and securities transaction tax (STT).

Vantage covered those remarks in -> LTCG and STT: Review Reports Do Not Mean a Tax Cut.

The latest reporting provides greater specificity about policy options reportedly under consideration, particularly dollar-based taxation for FPIs.

That is a development in the reported discussions, not confirmation that any proposal has been accepted.

Would Lower Taxes Automatically Revive Indian Equities?

Not necessarily.

A lower tax burden could improve investors' after-tax outcomes if it applies to their investments.

However, investment decisions also depend on corporate earnings, valuations, liquidity, currency movements, economic conditions and competing global opportunities.

A tax change alone cannot guarantee stronger equity-market returns or increased foreign investment.

Policy design would also need to balance investment incentives with government revenue considerations.

What Should Investors Watch Next?

Three developments would clarify whether the discussions become meaningful policy.

First, an attributable government proposal identifying the affected investment categories and rates.

Second, the precise method proposed for computing foreign investors' capital gains.

Third, any Budget announcement, subsequent legislative provisions and implementation dates.

Until those details are available, taxpayers should distinguish existing law from possible future amendments.

The immediate development is a more detailed policy discussion, not an approved capital gains tax cut.

Would lower LTCG rates meaningfully change your investment decisions, or do earnings and market valuations matter more? Share your reasoning in the attached forum discussion.

Sources

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1. Budget 2027: Govt weighs LTCG tax cut, dollar-based taxation for FPIs, published on 26 October 2026 in The Indian Express.
2. Capital Gain, updated on 27 May 2026 by the Income Tax Department, Government of India.
3. Tax Rates and Computation, available in October 2026 from the Income Tax Department, Government of India.
4. LTCG and STT: Review Reports Do Not Mean a Tax Cut, published on 15 October 2026 in Vantage Radar.