LTCG and STT Debate Returns Ahead of Budget 2027; Equity Mutual Fund Tax Rules Unchanged

Key Takeaways:

• Finance Minister Nirmala Sitharaman said the government is open to hearing views on long-term capital gains tax and securities transaction tax during the Budget process. 
• Her comments do not constitute an announced change in tax policy, and existing capital-gains provisions continue to apply. 
• Under Section 112A, eligible long-term gains from specified equity assets are currently taxed at 12.5% on gains exceeding ₹1.25 lakh, subject to applicable conditions. 

The debate over taxation of equity investments has returned ahead of the next Union Budget after Finance Minister Nirmala Sitharaman said the government would be open to hearing views on long-term capital gains tax and securities transaction tax. 

Speaking at the Bloomberg New Economy Forum in New Delhi, Sitharaman acknowledged that domestic as well as overseas investors had raised questions about capital-gains taxation, STT and whether different types of assets should receive similar tax treatment. 

The comments generated renewed discussion over whether the government could review the current tax structure in Budget 2027. They should not, however, be interpreted as an announcement that LTCG tax or STT will be withdrawn or reduced. 

No such policy change has been notified. 

Under the present framework, Section 112A provides for a 12.5% tax rate on eligible long-term capital gains exceeding ₹1.25 lakh from specified equity assets, subject to the conditions prescribed under the Income-tax Act. The rules cover qualifying listed equity investments and equity-oriented mutual fund units. 

For listed equity investments falling within the provision, long-term status generally requires the applicable holding period to be met. Moneycontrol's October 14 review of the Income Tax Department rules cited a 12-month threshold for listed shares and a 12.5% rate under Section 112A above the annual exemption. 

STT is structurally different from capital-gains tax. It applies to specified securities transactions based on transaction value, whereas LTCG tax applies to qualifying gains when the relevant conditions are met. 

The immediate development is therefore the reopening of the policy discussion rather than a change in mutual-fund taxation. Any alteration to the existing LTCG framework would require a formal government proposal followed by the applicable legislative and notification process.