Relief on Long-Term Capital Gains

Budget 2026 Expectations: Relief on Long-Term Capital Gains (LTCG)

Budget 2026 expectations on LTCG tax relief. Explore possible capital gains tax changes and how they may impact long-term investors

Written by : Knowledge Centre Team

2026-01-30

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8 minutes read

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As Budget 2026 approaches, one topic is dominating conversations among investors, tax experts, and market watchers alike: relief on Long-Term Capital Gains (LTCG) tax. With millions of Indians now investing in equities, mutual funds, real estate, and gold, capital gains taxation has a direct impact on household wealth creation.

Over the past few years, changes such as the removal of indexation on certain assets and tighter LTCG rules have increased the effective tax burden on long-term investors. Against this backdrop, expectations are building that Budget 2026 may bring some rationalisation or relief in LTCG tax. This blog breaks down the current rules, explains why relief is being discussed, and explores what changes investors are realistically hoping for, without hype or speculation.

Key Takeaways

  • LTCG tax relief is a major expectation from Budget 2026, especially as retail investor participation continues to rise

  • Current LTCG tax rules vary across asset classes, creating complexity and uneven post-tax returns

  • Experts believe higher exemption limits or rationalised tax rates could better protect real returns from inflation

  • Any LTCG relief may encourage long-term investing over short-term trading, supporting market stability

  • Budget 2026 is expected to bring incremental changes, not a complete overhaul of capital gains taxation

Budget 2026 Expectations: Why LTCG Tax is Back in the Spotlight?

Long-Term Capital Gains tax is back in focus because investing has gone mainstream in India. Retail participation in equity markets has surged, SIPs have become household habits, and long-term investing is now encouraged as a path to financial security.

However, many investors feel that the LTCG tax has not kept pace with inflation, market growth, or changing investment behaviour. Experts believe higher LTCG taxes can discourage long-term investing and capital formation, especially amid rising retail participation and inflation pressures. As Budget 2026 nears, this has sparked renewed debate on whether capital gains tax should be recalibrated to better reward long-term investors.

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What Is Long-Term Capital Gains (LTCG) Tax?

To understand the expectations, it’s important to first understand what the LTCG tax actually means. Long-Term Capital Gains (LTCG) refers to the profit earned when a capital asset is sold after being held for a specified minimum period. The holding period varies depending on the type of asset. Once this period is crossed, any gain is classified as long-term and taxed under LTCG provisions.

In simple terms, LTCG tax is the tax you pay on profits from long-term investments, such as shares, mutual funds, or property, when you sell them after holding them for the required duration.

  • How Capital Gains Tax Works in India Today: India’s capital gains tax system distinguishes between short-term and long-term gains, with different tax rates and rules for each. While this structure aims to promote long-term investing, recent changes have made LTCG taxation more complex for investors.

    Currently, LTCG tax applies across multiple asset classes, each with its own rules, exemptions, and calculation methods. Understanding this baseline is essential before evaluating what Budget 2026 might change.
  • Current LTCG Tax Rules Across Asset Classes: Before looking at possible relief, let’s summarise how LTCG tax works today for common investments. Here’s a simplified overview:
    1. Equity shares and equity mutual funds: LTCG exceeding ₹1.25 lakh in a financial year is taxed at 12.5% without indexation, provided Securities Transaction Tax (STT) is paid
    2. Debt mutual funds (post-April 2023 investments): LTCG benefits are largely removed, and gains are taxed as per the investor’s income tax slab, regardless of holding period
    3. Real estate (property): LTCG applies if held for more than 24 months, taxed at 20% with indexation benefit
    4. Gold and other specified assets: Taxed at 12.5% without indexation after the prescribed holding period, as per the revised post-July 2024 rules

This uneven treatment across assets is one of the main reasons investors are calling for capital gains tax rationalisation.

Why Investors are Expecting LTCG Relief in Budget 2026?

The expectation of LTCG relief is not based on wishful thinking alone. It is driven by structural shifts in how Indians invest and save.

Critics currently argue that long-term capital gains tax can hinder long-term investing and reduce real post-tax returns, particularly when inflation and the absence of indexation are factored in. Several market observers believe Budget 2026 presents an opportunity to rebalance taxation in favour of patient capital.

Key Reasons Behind the Demand for LTCG Relief:

There are multiple factors fueling investor expectations ahead of Budget 2026. Some of the key reasons include:

  • Sharp rise in retail equity participation, making LTCG tax relevant to a much larger population

  • Inflation-adjusted returns are shrinking, especially when indexation benefits are limited or removed

  • Post-2023 changes to debt mutual fund taxation, which reduced long-term tax efficiency

  • Need to encourage long-term investing over short-term trading

  • Comparisons with global markets, where long-term investments often receive favourable tax treatment

Together, these factors have put LTCG tax reform firmly on the Budget 2026 discussion table.

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Did You Know?

Long-term capital losses can be carried forward for up to 8 years and set off only against future LTCG, helping reduce your tax liability later


Source: IncomeTaxIndia

Saving tax with saving plan

Expected LTCG Relief Measures Being Discussed Ahead of Budget 2026

While no official announcements have been made, several potential LTCG relief measures are being widely discussed by experts and industry bodies. Based on current discussions and media analysis, here are the changes investors are watching closely:

  • Increase in the ₹1.25 lakh LTCG exemption limit for equity investments

  • Reduction or rationalisation of the 12.5% LTCG tax rate on equities

  • Reintroduction or expansion of indexation benefits for long-term assets

  • Harmonisation of LTCG rules across asset classes to reduce complexity

  • Re-evaluation of STT and capital gains tax overlap

It’s important to note that these are expectations, not guarantees, but they reflect the direction of current policy conversations.

Expected Changes in LTCG Tax on Equity Investments

Equity investors are at the centre of the LTCG debate, largely because equity markets have seen explosive retail growth. Many experts believe that Budget 2026 could consider raising the LTCG exemption threshold beyond ₹1.25 lakh, which was recently increased but may still be inadequate given rising market participation and inflation. Others suggest that tweaking the tax rate or introducing a graded structure could provide relief without significantly impacting government revenues.

Any positive move here is likely to boost long-term investor confidence and reinforce the message that patience in markets is rewarded.

Expected LTCG Relief for Mutual Funds and Other Assets

Beyond equities, investors are keenly watching how Budget 2026 addresses LTCG on other assets, especially after recent changes. Here are areas where relief is being discussed:

  • Debt mutual funds, where the removal of LTCG benefits has reduced post-tax returns

  • Real estate, where indexation remains, but transaction costs and holding periods are high

  • Gold investments, which are popular among Indian households but taxed heavily on long-term gains

Experts suggest that restoring balance across these asset classes could make long-term financial planning more predictable and fair.

The Impact: What Experts and Institutions are Saying

Across financial media, tax experts and market analysts broadly agree on one point: LTCG tax needs simplification and rationalisation, even if complete relief is unlikely. Most expect Budget 2026 to strike a balance between investor sentiment and revenue considerations. Rather than sweeping reforms, incremental changes, such as threshold adjustments or limited indexation relief, are seen as more realistic and sustainable.

How LTCG Tax Relief Could Impact Investor Behaviour:

Tax policy plays a powerful role in shaping how people invest. Any relief in LTCG tax could influence behaviour in meaningful ways. Lower or more rational LTCG taxation may encourage investors to stay invested longer, reduce short-term speculation, and focus on disciplined wealth creation. It could also improve post-tax returns, making long-term investments more attractive compared to frequent trading.

What Budget 2026 May Actually Deliver on Capital Gains Tax?

While expectations are high, experts caution against assuming dramatic changes. Historically, capital gains tax reforms in India have been gradual. Budget 2026 may focus on fine-tuning existing LTCG rules rather than overhauling the system entirely. Even small changes, like higher exemption limits or clearer asset classification, could have a meaningful impact on long-term investors.

What Investors Should Do Before Budget 2026?

With so much discussion around LTCG tax, it’s natural to feel tempted to act. However, experts advise patience and discipline. Before Budget 2026, investors should:

  • Avoid making investment decisions based purely on tax speculation
  • Stay focused on long-term goals, not short-term budget outcomes
  • Review asset allocation rather than trying to time tax changes
  • Be prepared to adjust strategy after official announcements

Tax rules may change, but sound investing principles remain constant.

Final Thoughts

The growing focus on LTCG tax and capital gains tax relief ahead of Budget 2026 reflects a larger shift in India’s investment landscape. As more citizens participate in markets, the need for fair, simple, and growth-oriented tax rules becomes more important than ever.

While Budget 2026 may not deliver sweeping reforms, even measured relief could strengthen long-term investor confidence and support capital formation. For now, LTCG tax reform remains an expectation, but one rooted in genuine economic reasoning rather than mere optimism.

Glossary

  1. Long-Term Capital Gains (LTCG): Profit earned from selling an asset after holding it for the specified long-term period
  2. Capital Gains Tax: Tax levied on profit made from selling investments like shares, property, or gold
  3. Indexation Benefit: A method to adjust purchase cost for inflation to reduce taxable capital gains
  4. Securities Transaction Tax (STT): Tax charged on buying or selling equity shares on recognised stock exchanges
  5. Tax Rationalisation: Simplifying or adjusting tax rules to make them fairer and more consistent
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FAQs

LTCG tax is charged on profits from selling long-term assets like shares, mutual funds, property, or gold after the holding period. The tax rate and exemption depend on the asset class.

There is no confirmation yet, but experts expect Budget 2026 to consider rationalising LTCG tax through higher exemptions or simplified rules rather than major cuts.

Currently, LTCG on equity shares and equity mutual funds is tax-free up to ₹1.25 lakh in a financial year. Gains above this limit are taxed at applicable LTCG rates.

LTCG relief could improve post-tax returns, encourage long-term investing, and reduce the impact of inflation on wealth creation for equity and mutual fund investors

Experts advise against making decisions based on Budget speculation. Investors should stay focused on long-term goals and review strategies only after official announcements.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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