Budget 2026: Investors Seek 10% LTCG, Higher Exemption, Indexation Return

Investors and tax professionals are advocating for improvements to India’s capital gains tax system as Budget 2026 draws near.

Budget 2026 Expectations on Capital Gains Tax

Higher exemption ceilings, consistent holding periods across asset classes, a decrease in the Long Term Capital Gain (LTCG) rate, and the reinstatement of indexation advantages are some of the main requests.

They contend that such actions are essential to lowering tax burdens, safeguarding long-term savers, and maintaining investor confidence. Investors want consistent holding periods, more exemptions, and 10% LTCG.

Uniform LTCG Rate Introduced in July 2024

In July 2024, all asset classes—including mutual funds, real estate, stocks, gold, and bonds with varying holding periods—were subject to a uniform long-term capital gains tax rate of 12.5 percent.

According to tax experts, the government should lower the LTCG rate from 12.5% to 10% since doing so will immediately boost investors’ net earnings.

Expert Views on Reducing LTCG to 10%

In addition to lowering taxpayers’ tax obligations, lowering the LTCG rates to 10% would draw investors back to India, according to Kunal Savani, partner at Cyril Amarchand Mangaldas.

Many, however, anticipate that Budget 2026 will either simplify holding period regulations or increase the tax-free LTCG level. For example, real estate has a two-year holding period, while equities mutual funds held for more than a year with profits above Rs 1.25 lakh are subject to the LTCG rate.

Calls for Higher LTCG Exemption

“Raising the yearly exemption ceiling from Rs 1.25 lakh to Rs 2 lakh-2.5 lakh will likely give relief to smaller retail investors while ensuring tax buoyancy for the government,” says Ankit Jain, a partner at Ved Jain and Associates.

Singhania & Co. partner Ritika Nayyar thinks there is room to streamline and synchronize the duration of holding asset classes. According to her, bringing the same financial assets up to par with the holding term would be advantageous for taxpayers.

Contrary View on India’s Capital Gains Tax

The CEO and founder of ClearTax, Archit Gupta, disagrees. Given that nations like Japan (20.31%) and the UK (up to 24%) have significant market capitalization in capital gains transactions and higher tax rates, he feels that India’s capital gains tax environment is both favorable and balanced.

Indexation Benefit: Major Investor Concern

The market anticipates that the Budget 2026 would reduce the advantages of indexation for long-term savings instruments, pointing out that doing so would actually raise the real tax burden.

The 2024 budget eliminated indexation advantages, which continue to be a major source of frustration for gold and real estate investors. Long-term savers who depend on these assets for retirement security would greatly benefit from the reintroduction of indexation for older persons or principal residential properties, according to Nayyar.

What Is Indexation?

The Central Board of Direct Taxes (CBDT) defines indexation as the process of adjusting a capital asset’s purchase or upgrade costs against an inflationary increase in the asset’s value.

For the majority of assets, including listed shares, equity mutual funds, business trusts, gold, bonds, and real estate purchased after July 23, 2024, Budget 2024 significantly eliminated the indexation advantage on LTCG. A consistent 12.5 percent tax rate took its place. “The market’s main anticipation is the resumption of indexation for debt mutual funds held for more than 36 months.” Currently, these funds are subject to marginal slab tax rates, which, depending on the investor’s income, might reach 30% or more. According to Jain, “restoring the 20% tax rate with indexation will assist increase liquidity in the corporate bond market and align debt funds with their historical function as a long-term savings vehicle.”

Frequently asked questions

1. Why are investors calling for a 10% reduction in the LTCG tax?

Investors think that lowering LTCG from 12.5% to 10% would boost post-tax profits, promote long-term investment, and strengthen India’s competitiveness in international markets.

2. How are the LTCG exemption limitations anticipated to change?

To help small retail investors without substantially affecting government income, tax experts recommend increasing the existing ₹1.25 lakh tax-free LTCG ceiling to ₹2–2.5 lakh.

3. Why do various asset types have varying holding periods?

Tax planning is complicated since various assets need varying holding periods to be considered long-term. To make compliance easier, experts propose consistent holding periods for financial assets.

4. What is the rationale behind the need to restore indexation benefits?

Indexation makes inflation adjustments to asset costs. The actual tax burden has grown as a result of its repeal, particularly for investors in debt funds, real estate, and gold. Restoring it would safeguard savings over time.

5. Will Budget 2026 undoubtedly include these adjustments?

As of now, there is no confirmation. The government may take into consideration more exemptions, partial indexation relief, or streamlined regulations, even if a complete LTCG rate reduction is improbable.

Conclusion

Investor expectations center on lowering capital gains taxes as Budget 2026 draws near in order to encourage long-term savings and stable investments.

Practical measures like increased exemption limits, streamlined holding periods, and selective restoration of indexation benefits seem more feasible, even if reducing LTCG to 10% is still an idealistic goal. Any sensible action by the government may maintain market liquidity and tax revenues while boosting investor confidence.

Disclaimer:
This article is for informational purposes only and should not be considered tax, legal, or investment advice. Readers are advised to consult a qualified tax or financial professional before making any investment decisions.