SBI Research Calls for Scrapping LTCG Tax on Equities to Attract Foreign Investors

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Introduction

In its Ecowrap report dated 12 October 2026, SBI Research urged the government to end long-term capital gains (LTCG) tax on equities. The recommendation, reported on 13 October 2026, links the proposed tax removal to an extended holding period of 2–3 years. SBI Research suggested that removing LTCG tax on equities alongside a longer holding period of 2–3 years could encourage foreign investors to retain their investments and reduce early withdrawals. However, this remains a recommendation, and no changes to the existing tax rules have been confirmed.

Behind the recommendation are continued withdrawals from Indian shares by foreign portfolio investors (FPIs). SBI Research wants the government to address this through changes in taxation. Investors holding shares for the proposed period would benefit from the removal of LTCG tax, although those selling earlier would face a longer wait to qualify for long-term treatment. The government would also need to account for the revenue currently collected through this tax.

How Will SBI Research’s LTCG Tax Proposal Affect Indian Investors?

The 12-month threshold separates short-term and long-term gains on listed shares. LTCG treatment applies only when those shares are held for more than 12 months. Of the qualifying equity gains earned in a year, the amount above ₹1.25 lakh attracts 12.5% LTCG tax. The rules also cover eligible equity-oriented mutual funds. SBI Research wants the government to remove this tax on equities while increasing the qualifying holding period.

Foreign investment is the immediate focus of SBI Research’s recommendation. A broader revision to equity taxation, however, would also have implications for Indian shareholders. For now, the existing provisions determine how profits from equity investments are taxed.

The existing rates were introduced through the Union Budget 2024–25. The Finance Ministry’s announcement dated 23 July 2024⁠ confirms the applicable tax rates and exemption threshold.

Why Is SBI Research Seeking Abolition Of Equity LTCG Tax?

Foreign investment withdrawals have been substantial. Of the ₹3.51 lakh crore in cumulative foreign equity outflows identified by SBI Research for 2021–September 2026, more than ₹2.61 lakh crore relates to January–September 2026.

SBI Research believes tax incentives could help India retain foreign investments for longer periods. The report argued that India’s established listed companies continue to offer investment opportunities, but overseas investors also have competing markets to consider. A longer holding period combined with lower taxation was suggested as a way to encourage more sustained participation.

What Did SBI Research Experts Recommend?

The recommendation came from an Ecowrap research note authored by Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI. The report urged the government to examine ways of anchoring short-term foreign capital flows in the equity market.

It specifically recommended extending the holding period to 2–3 years and abolishing long-term capital gains tax on equities. The research also argued that tax incentives after a reasonable holding period could encourage additional foreign investment in Indian companies.

Our assessment focuses on the proposed holding requirement. Tax removal and a longer qualifying period would operate together, so investors selling before the revised threshold would not automatically qualify for the proposed benefit. Our capital gains tax guide⁠ explains how holding periods and taxable profits affect investment returns under existing rules.

What Was The Government’s Previous Decision On LTCG Tax?

Until the Union Budget announcement on 23 July 2024, eligible long-term equity gains attracted 10% tax above the annual exemption of ₹1 lakh. The budget raised the rate to 12.5% and the exemption threshold to ₹1.25 lakh. Tax on short-term gains from specified financial assets also went up from 15% to 20%.

A later parliamentary discussion addressed the possibility of removing LTCG tax for domestic investors.

On behalf of the government, Pankaj Chaudhary answered the question raised about the capital gains tax collections and exemptions in Lok Sabha Unstarred Question No. 166 on 20 July 2026 

The minister stated:

“At present, there is no such proposal under consideration.”

The official parliamentary reply dated 20 July 2026⁠ also recorded ₹1,29,158 crore in equity LTCG tax collections for Assessment Year 2025–26.

The government explained that capital gains tax policies undergo periodic reviews during the annual Budget process and legislative revisions.

Conclusion

SBI Research’s 12 October 2026 recommendation seeks to attract foreign capital by removing LTCG tax on equities and extending the holding period to 2–3 years.

The proposal follows substantial foreign investor withdrawals from Indian stock markets. However, it remains a research recommendation rather than a government decision. The existing 12.5% LTCG tax and 12-month qualifying period continue to apply.

Frequently Asked Questions

1. Has The Government Abolished LTCG Tax On Equities In 2026?

No. As of 13 October 2026, the government has not announced the abolition of equity LTCG tax. SBI Research has recommended its removal.

2. What Holding Period Has SBI Research Proposed For Equities?

SBI Research recommended extending the holding period from 12 months to 2–3 years while removing LTCG tax on qualifying equities.

3. Why Does SBI Research Want To Remove LTCG Tax?

The recommendation aims to attract foreign portfolio investment and encourage overseas investors to retain Indian equities for longer periods.

4. Will Existing Shareholders Benefit If LTCG Tax Is Removed?

The proposal does not establish benefits for existing shareholders. Their tax treatment continues under current law unless the government changes the rules.

5. Will The ₹1.25 Lakh LTCG Tax Exemption Continue In 2026?

Yes. Under the existing rules, qualifying annual long-term equity gains up to ₹1.25 lakh remain exempt. Gains exceeding that threshold generally attract 12.5% tax, plus applicable surcharge and cess.