Budget 2026 tax expectations of stock market investors: STT, Capital Gain relief and more

Ahead of the Union Budget 2026, stock market investors are pinning their hopes on significant tax reforms aimed at boosting investor sentiment and deepening capital markets. Finance Minister Nirmala Sitharaman is set to present her ninth consecutive Budget on Sunday, February 1.

Reduction in Securities Transaction Tax (STT)

"The 2026 Budget is expected to be pivotal for financial markets, with a focus on stability and tax parity. Key expectations include steps to improve investor sentiment by reducing LTCG tax to 10% and rolling back STT to encourage higher FII participation," said Aditya Agrawal, CFA, Chief Investment Officer at Avisa Wealth Creators.

Currently, STT stands at 0.1% on delivery-based equity transactions and 0.02–0.125% on derivatives.

Investors believe that lowering STT could reduce transaction costs, encourage long-term investing, and attract more Foreign Institutional Investors (FIIs).

STT is a tax levied on the buying and selling of securities on Indian stock exchanges. It is charged over and above the transaction value and applies to equity shares, derivatives, equity-oriented mutual fund units, unlisted shares offered through an IPO, and securitised debt instruments.

Reduction of Long-Term Capital Gains (LTCG) tax

Another key demand is the reduction of Long-Term Capital Gains (LTCG) tax on equities to 10%, a move expected to further incentivise long-term investments and improve overall market sentiment.

Under the current tax regime, long-term capital gains on equity and equity-oriented mutual funds are taxed at 12.5% on gains exceeding ₹1.25 lakh in a financial year.

Greater tax parity across financial products

Market participants are also pushing for greater tax parity across financial products.

"Additionally, the industry is advocating tax parity for debt instruments and structured products, many of which are currently taxed at marginal slab rates, often exceeding 40% including surcharge and cess—towards a more equitable framework that supports conservative and long-term wealth creation," said Aditya Agrawal.

The new provisions were applicable from 23 July 2024 and simplify holding periods to one year for listed securities and two years for other assets, with exceptions for immovable property and unlisted shares, which remain at 24 months.

Short-term capital gains on STT-paid assets now attract 20%, and long-term gains 12.5%, replacing the earlier 15% and 10% with indexation; the LTCG exemption under Section 112A has been increased from ₹1 lakh to ₹1.25 lakh.

Ahead of Budget 2026, stock market investors are hoping for key tax reforms to encourage long-term investing and reduce transaction costs.