India’s Finance Minister Nirmala Sitharaman has indicated a willingness to consider investor concerns regarding investment taxes, raising expectations among non-resident Indians (NRIs) and other stakeholders about potential changes in the country’s securities transaction tax (STT) and long-term capital gains tax (LTCG) regimes ahead of the 2027 Union Budget.
Speaking at the Bloomberg New Economy Forum in New Delhi, Sitharaman remarked that the government is open to engaging in a debate on the matter but did not commit to any immediate reductions or eliminations of the existing levies. Her statement has been interpreted by investors as a signal that the government may review the impact of these taxes, which currently reduce net gains on investments in Indian equities.
The STT is a tax applied to specific transactions in the stock market, charged at 0.1 percent of the value of share purchases and sales. For example, buying shares worth Rs1,000,000 entails a tax of Rs1,000, while selling the same shares for Rs1,500,000 results in a tax of Rs1,500, regardless of the investor’s profit or loss on the transaction. The levy applies even when investments incur losses.
Separately, long-term capital gains tax applies to the profit realized upon sale of qualifying shares or equity-oriented mutual funds held for over 12 months. Gains exceeding Rs125,000 in a financial year are taxed at 12.5 percent, while short-term gains—derived from investments held for 12 months or less—are subject to a 20 percent rate. A health and education cess at 4 percent is levied on these taxes. Notably, the Rs125,000 exemption limit is cumulative for all qualifying gains in a tax year rather than per individual transaction.
The combination of STT and capital gains tax has drawn criticism from some investors and fund managers, who view the overlapping tax burden as a deterrent to investment. According to an executive from a Mumbai-based asset management company, the dual taxation reduces investor returns and calls for a balanced approach to taxation.
Recent tax adjustments in 2024 increased the LTCG rate from 10 to 12.5 percent and the short-term capital gains rate from 15 to 20 percent, with the exemption threshold raised from Rs100,000 to Rs125,000. However, these changes apply irrespective of purchase dates, except for investors holding qualifying shares bought before February 1, 2018, who are entitled to grandfathered protection for gains accrued on those investments.
Should STT be abolished in the future, investors would immediately save the direct cost on share sales. For instance, eliminating STT on a Rs1,500,000 sale could save Rs1,500 in transaction taxes, though the capital gains tax would remain unless similarly amended. Conversely, removal of LTCG tax would benefit investors by eliminating the tax on profits but would not affect pre-paid transaction taxes. Any relief would depend on the government’s specifications regarding eligibility, timing, and potential holding period criteria. Currently, there is no indication that retrospective relief will be granted.
Equity-oriented mutual funds incur a much lower transaction tax, typically 0.001 percent on redemptions, equating to Rs15 on a Rs1,500,000 redemption, as opposed to the 0.1 percent charged on delivery-based share transactions. Therefore, any reforms targeting “equities” would need clarity on whether mutual funds are included, as investors should not assume uniform treatment across all equity investments.
As India prepares its forthcoming budget, NRIs invested in Indian markets will be closely monitoring developments, hopeful for tax reforms that could enhance returns while authorities weigh the balance between investor incentives and government revenue needs.