Synopsis: This article explains the current capital gains tax rules in India, its shortcomings, and what changes the tax professionals and market experts expect and suggest for the Union Budget 2026.
As the nation prepares for the Union Budget 2026, the capital gains tax regime is gaining attention. Recent hikes in LTCGs and STCGs have left investors uncertain about their long-term savings. Therefore, investors urge the government to provide clarity and relief on these taxes.
Capital Gains Tax Basics: STCG vs LTCG
Capital gains tax is a tax levied on gains from the sale of assets such as equities, mutual funds, real estate, bonds, gold, or other investments. The tax rate depends on factors such as the asset type, holding period, and profits earned.
Profit from the sale of assets can be classified into 2 categories
- Short-Term Capital Gains (STCG): Gains from the assets sold within a specified short holding period, i.e., lower than the minimum period required to qualify for LTCG. These tax rates are usually high or at special rates.
- Long-Term Capital Gains (LTCG): Gains from assets held for longer than the prescribed period. These tax rates are lower compared to STCG, encouraging long-term investing.
Current Holding Period Rules Across Asset Classes
| Asset Type | Minimum Period to Qualify for LTCG |
| Equities and Equity MFs | 12 months |
| Bonds and Debt MFs | 24 months |
| Immovable Properties | 24 months |
| Gold, Silver, unlisted shares, etc | 24 months |
| Business for Slump Sale | 36 months |
Also read: Top 7 International Mutual Funds in India With Up to 37.2% Returns in 3 Years
Current Capital Gains Tax Treatment
| Asset Type | STCG Tax Rate | LTCG Tax Rate |
| Equities and Equity MFs | 20% | 12.5% on gains above ₹1.25 lakh |
| Listed Bonds and Debentures | Slab rates | 12.5% |
| Debt MFs | Slab rates | Slab rates |
| Immovable Properties | Slab rates | 20% or 12.5%, depending on the date of acquisition. |
| Gold, Silver, unlisted shares, etc | Slab rates | 12.5% |
What’s Wrong with the Current Framework?
- Complexity Due to Multiple Holding Periods
- Inconsistency in Tax Treatment Across Asset Classes
- Compliance Challenges for Taxpayers
- Impact on Long-Term Investing and Tax Planning
Budget 2026: Key Changes Experts Expect
At present, different asset classes have different holding periods. Tax professionals urge aligning these holding periods to simplify and improve clarity for taxpayers.
Sanjay Kumar, Director at Nangia Global, told the Economic Times about the misalignment in the holding period threshold for transactions such as slump rates. While other assets enjoy a 24-month threshold, slump rates require 36 months to qualify for LTCG.
While the current exemption limit for LTCG on equity investment is ₹1.25 lakh p.a, the Association of Mutual Funds in India (AMFI) suggests that this limit be increased. Ankit Jain, Partner at Ved Jain and Associates, told Moneycontrol that the government should increase the exemption limit to ₹2 lakh to ₹2.5 lakh.
DP Singh, Executive Director at SBI Mutual Fund, recommends that the government consider freezing the LTCG rate for the next 3-5 years to provide certainty for the investors. At the same time, Kunal Savani, Partner at Cyril Amarchand Mangaldas, suggests the LTCG tax rates should be reduced to attract investment to India.
Conclusion
With more investors joining in and markets getting more complex, the capital gains tax system needs to be simpler and more consistent. Budget 2026 gives the government a chance to clarify holding periods, fix inconsistencies, and regain investor confidence. Any changes made could significantly impact long-term investment behavior and market sentiment in the future.
Written by Nila Maria Jacob
