Taxpayers will get big relief in LTCG
Budget 2026: The countdown to Budget 2026 has started and like every time, this time also the eyes of crores of taxpayers of the country are fixed on Finance Minister Nirmala Sitharaman. Amidst inflation and changing economic conditions, the common man and stock market investors are hoping that the government will definitely provide some relief to their pockets. The biggest discussion is about ‘Capital Gains Tax’. The way tax rules have been changed in the last few years has raised many questions in the minds of investors. In this budget, the government can take some big steps to solve the complex web of taxes, due to which the scissors on your income may become a little less sharp.
There was a time when the government did not charge LTCG tax.
To understand the tax rules, we have to go back a little. There was a time when Long Term Capital Gains (LTCG) were taxed at 20 percent with indexation. Indexation means adjusting the purchase price according to inflation, which reduces the tax burden. But a big change came in 2004. The government brought in ‘Securities Transaction Tax’ (STT). In return, shares of listed companies and equity mutual funds were completely exempted from LTCG tax. This was no less than a golden period for investors.
However, this happiness did not last forever. In 2018, the government again implemented LTCG. Under Section 112A of the Income Tax Act, 10 percent tax was imposed on profits above Rs 1 lakh. That is, now investors had to pay STT as well as LTCG. This is where the complexity in the rules started, the demand for solving which is still there.
Shock in 2024, rules changed
The changes made by the government in the capital gains rules last year, i.e. in the budget of 2024, spoiled the calculations of many people. Tax on listed shares and equity mutual funds was increased from 10 percent to 12.5 percent. At the same time, the tax rate on immovable property was reduced to 12.5 percent, but the biggest blow was given by abolishing the ‘indexation benefit’. However, in view of the huge opposition and concerns, the government also gave the option of old rules (20% tax with indexation) on property purchased before July 23, 2024.
The government’s argument was that it wanted to simplify the rules and bring a single rate instead of different rates. But the reality is that even today there is a lot of inequality in the tax rules. Still, the holding period for different assets is different, which becomes difficult for a common investor to understand.
Will the burden of double tax end this time?
The biggest expectation from this budget is regarding STT. When STT was introduced in 2004, it was as an alternative to LTCG. But now that LTCG has been implemented again and its rates have also increased, there does not seem to be any logical basis for maintaining STT. Market experts believe that removing or gradually reducing STT will increase liquidity in the stock market and investors will not be hit twice.
Apart from this, the need of the hour is to remove the discrepancy in holding period. Currently this limit is 12 months for listed shares, while 24 months for unlisted shares. If the government makes it uniform, tax filing will become easier.
Debt fund investors will also get benefits
This budget is also important for mutual fund investors. At present, the rules of equity funds are largely in favor of investors, with a holding period of 12 months and tax exemption on profits up to Rs 1.25 lakh, but this is not the case with debt funds. There, your earnings are taxed as per the tax slab, no matter how many years you have held the fund. Complete elimination of LTCG benefit from debt funds is a big blow for conservative investors (risk-averse investors). It is expected that the Finance Minister will remove this inequality and encourage the middle class to invest.