LTCG tax debate returns ahead of Budget 2027: How stocks, mutual funds, gold and property are taxed

Finance Minister Nirmala Sitharaman has indicated that the government is open to hearing stakeholders’ views on the issue. Speaking at the Bloomberg New Economy Forum in New Delhi on 13 October, the FM said, "there's a lot of debate over the tax commonly known as securities transaction tax, it's healthy to have this debate, and I will be keenly hearing them."

While no changes to the existing LTCG tax rules have been announced, the renewed debate has brought the taxation of investments back into focus.

How is LTCG taxed?

A house or other immovable property generally qualifies as a long-term capital asset if it is held for more than 24 months.

Listed equity shares and equity-oriented mutual fund units generally qualify as long-term capital assets after a holding period of more than 12 months.

The holding-period rules for other securities and mutual fund units depend on their classification.

Stocks and equity mutual funds: LTCG tax at 12.5%

Under Section 198 of the Income-tax Act, 2025, long-term capital gains from eligible listed equity shares and equity-oriented mutual fund units, subject to the applicable STT conditions, are taxed at 12.5% on gains exceeding ₹1.25 lakh in a financial year.

The ₹1.25 lakh exemption applies to eligible long-term capital gains from these investments. Gains exceeding this threshold are taxed at 12.5%, subject to the applicable provisions.

SBI Research has proposed scrapping LTCG tax on equities and extending the holding period to two to three years to encourage longer-term investment. However, this remains a proposal, and the existing tax rules continue to apply.

Global stocks and other mutual funds: Different tax rules apply

The ₹1.25 lakh LTCG exemption available for eligible equity investments does not automatically extend to global stocks and mutual fund schemes that do not qualify as equity-oriented funds.

Section 197 of the Income-tax Act, 2025, covers long-term capital gains from other capital assets. The applicable tax treatment depends on the nature of the investment, its holding period and the relevant provisions.

Property: 20% with indexation or 12.5% without indexation

How are different forms of gold investments taxed?

When you sell physical gold (jewellery, coins, bars), any profit you make is treated as capital gain.

Gold held for more than 24 months qualifies as a long-term capital asset. The gains are generally taxed at 12.5% without indexation, plus applicable surcharge and cess.

Their tax treatment depends on whether the units are listed or unlisted and on the applicable provisions.

Listed gold ETF units held for more than 12 months generally qualify as long-term capital assets, with eligible gains taxed at 12.5% without indexation. Unlisted gold mutual fund units generally require a holding period of more than 24 months to qualify as long-term capital assets

From April 1, 2026, the capital gains exemption on redemption at maturity is available only to individual investors who subscribe to the bonds at the time of original issuance and hold them continuously until maturity, subject to the applicable conditions.

Investors who purchase SGBs on the secondary market do not qualify for this exemption merely by holding the bonds until maturity. Their gains are subject to the applicable capital gains tax rules.

For tax purposes, digital gold is generally treated as a capital asset.

What does the LTCG tax debate mean for investors?

The renewed debate has brought questions about equity taxation and the treatment of different asset classes back into focus. However, the government has not announced any changes to the existing LTCG tax rules, which continue to apply.

India raised the LTCG tax rate on listed equities from 10% to 12.5% in July 2024, increased the exemption threshold from ₹1 lakh to ₹1.25 lakh, and raised the short-term capital gains tax rate from 15% to 20%. In Budget 2026, it increased STT on equity derivatives, with the higher rates taking effect from April 1, 2026.