LTCG news: Budget 2027-28 may cut long-term capital gains tax for both domestic and foreign investors, says report

Long-term capital gains tax applies when an investor sells a capital asset for more than its eligible cost after holding it for the period required for long-term treatment. The taxable gain generally reflects the sale proceeds minus acquisition costs, improvement costs and eligible transfer expenses. The article does not specify the holding-period thresholds for different assets.

For example, if an investor buys shares and later sells them at a profit, the gain may be treated as long-term depending on the investment and holding period. Under Section 72 of the Income-tax Act, 2025, the calculation uses the full consideration received and deducts eligible costs. The tax is applied to the resulting gain, not the entire sale value.

The current debate focuses on India’s 12.5% LTCG rate for relevant investments. Officials are considering whether changing that rate could improve market sentiment, especially after weak stock-market returns and sluggish wage growth. The article also discusses foreign investors’ currency-related concerns.

The reported proposal is to reduce the current 12.5% long-term capital gains tax as part of efforts to revive stock-market confidence. The discussions are taking place ahead of the Union Budget 2027-28. The government is examining the issue because investors have faced weak or negative market returns over the past two years.

The article gives no replacement rate. A lower rate would mean eligible investors keep more of the profit from selling long-term investments. Officials have also considered whether capital gains tax could be reduced or removed altogether. A senior government official said, “We are discussing every option,” when asked about possible stock-market measures.

The proposal remains under consideration, not an implemented policy. Finance Minister Nirmala Sitharaman called the LTCG debate “healthy” and said she was keen to hear different views. Domestic investors, foreign investors and questions about the Securities Transaction Tax are all part of the discussion.

The exact tax difference depends on the rate eventually chosen and the size of an investor’s taxable gain. For every ₹100 of gain, cutting the rate by one percentage point would reduce the tax by ₹1. For a ₹1 lakh taxable gain, the same one-point cut would reduce tax by ₹1,000. The article does not identify a proposed replacement rate.

For example, a reduction from 12.5% to 10% would lower tax by 2.5 percentage points. On a ₹1 lakh gain, that would mean ₹2,500 less tax, before considering any other rules. This is an illustration, not a reported government proposal. The saving rises with the size of the taxable gain.

Global investors have reportedly called India’s 12.5% rate relatively high. The article says China, Indonesia and Brazil have either no capital gains tax or comparatively low levies in certain circumstances. It does not provide exact rates for those countries, so a precise comparison is unavailable.

Foreign investors ultimately assess their investment in the currency they use at home. If an Indian asset rises in rupee terms, that gain may not represent an equivalent gain in dollars. A dollar-based calculation would better reflect the investor’s actual currency-adjusted performance.

For example, an investment could be sold for more rupees than the original purchase price. If the rupee has weakened substantially against the dollar during that period, converting both amounts into dollars may show a much smaller gain. The article says foreign investors are concerned that India calculates gains in rupees rather than dollars for listed equity investments.

Section 72(6) provides foreign-currency conversion relief to non-residents selling shares or debentures of unlisted Indian companies. However, the article says this relief does not extend in the same manner to domestic investors or foreign portfolio investors holding listed equity. Dollar-based treatment is therefore being discussed as a possible investor concern.

India’s rupee-based tax calculation can create a mismatch for foreign investors. It may treat the difference between the purchase and sale prices as a taxable gain in rupees, even though exchange-rate changes have reduced the investment’s value when measured in dollars. This is the central currency concern described in the article.

Suppose an investor buys an Indian share for an amount equal to $100 and sells it later for more rupees. If the rupee has weakened enough, the sale proceeds might convert to only $100, or less. The investor could still face tax on the rupee gain, while receiving no dollar gain or even suffering a dollar loss. This example illustrates the mechanism; the article gives no numerical case.

The article says foreign portfolio investors do not receive the same conversion relief for listed equity as some non-residents transferring unlisted-company shares. The government is reportedly considering dollar-based calculations to address this concern, but has not announced a change.

Lowering LTCG tax could improve the after-tax return from long-term investing. That may support stock-market participation, improve sentiment and make India more attractive to domestic and foreign investors. The government is considering the change after two years of weak or negative market returns and limited wage growth that have affected household confidence.

For example, if an investor earns a taxable long-term gain, a lower rate leaves more money after tax. Foreign investors could also respond positively if a reform addresses their concern about rupee-based gains. More participation or investment could support market activity, but the article does not quantify how much investment a tax cut would generate.

The immediate effect on government revenue would generally be lower tax collected on each taxable gain. However, stronger market activity could broaden the number or value of taxable transactions. The overall revenue result is uncertain, and the article reports only that officials are discussing every option, not that a decision has been made.

GDP growth and stock-market returns measure different things. GDP tracks economic output across the economy. Stock prices reflect the expected profits, risks and valuations of listed companies. A country can therefore report strong GDP growth while investors earn weak returns, especially if markets already priced in growth or listed companies face pressure.

Households may also feel poorer despite headline growth. If wages rise slowly while prices increase, purchasing power and the ability to save can weaken. If investments rise in rupees but the rupee loses value, foreign-currency wealth can fall. These effects help explain why economic growth, market performance and household sentiment do not always move together.

The article reports India’s April-June economic growth at 7.8%, alongside weak equity performance over two years and subdued private-sector salary growth. It links those conditions to concerns about household investment returns and consumption sentiment. The broader relationships with inflation and currency movements are established economic principles; the article specifically highlights wages and currency effects.