Govt can scrap LTCG tax with limited fiscal impact: Report

New Delhi, Nov 3 (IANS) The government could abolish long-term capital gains (LTCG) tax across investor categories even keeping its fiscal consolidation roadmap largely unaffected, as the resulting revenue loss is likely to be limited to Rs 40,000-50,000 crore in FY28, a report said on Tuesday.

The report from SBI Research estimated that eliminating LTCG tax would reduce government revenue by nearly 0.1-0.2 per cent of GDP, a level it said could be absorbed while keeping fiscal deficit targets broadly on track.

“We believe the government would be able to take this hit if hypothetically, the entire capital gains taxes were abolished,” the report said.

It estimated LTCG collections at around Rs 1 lakh crore in FY26 and projected them to decline to Rs 40,000-50,000 crore in FY27.

Nearly Rs 1.3 lakh crore collected in FY25 reflected exceptional market conditions, as Indian equities delivered returns of around 30 per cent in the preceding year and prompted foreign investors to book gains.

However, the recent market environment is markedly different, with the Nifty’s average return over the last three years at just 0.5 per cent and cumulative foreign institutional investor outflows at Rs 4.8 lakh crore.

The report also suggested changes to the broader capital gains tax structure and recommended raising the annual LTCG exemption threshold from Rs 1.25 lakh to Rs 2 lakh and linking it to inflation to provide more relief to retail investors.

The report also proposed lower tax rates for longer holding periods, suggesting that gains on investments held for two to three years could be taxed at 5 per cent, while assets held for over three years could attract zero LTCG tax.

It suggested that the existing 12.5 per cent rate could continue for investments held between one and two years.

“Term deposits, that have witnessed greater favor with savers with elevated rates attracting higher proportions, may witness a revenue foregone figure of Rs 10,500 crore if current tax treatment across maturity ladder is to be replaced by a simple flat 15 per cent rate across all maturity. Combined revenue foregone including both saving deposits and terms deposit thus comes around Rs 12,000 crore,” as per the report.

—IANS

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