Will Budget 2026 Fix LTCG Rules? Investors Say Tax Is Too High, Indexation Needed

Corporate sector investors and policy voices are renewing calls to roll back India's recent capital gains tax hikes, arguing the current regime penalizes long-term equity investing. Complete Circle CIO Gurmeet Chadha and AAP MP Raghav Chadha have urged Finance Minister Nirmala Sitharaman to reconsider the tax structure, warning that “patient capital” is struggling under high taxes and policy uncertainty.

Gurmeet Chadha, in a post on X, flagged a telling data point: only 30% of systematic investment plans (SIPs) cross the three-year mark. “Patient long-term risk capital must be rewarded,” he said.  “We need risk capital to fund India's growth story.” His appeal comes after the government hiked the long-term capital gains (LTCG) tax rate from 10% to 12.5% in July 2024.

Raghav Chadha took the argument to Parliament, saying India's tax regime treats long-term investing like speculation. “There is no indexation. Surcharges are high. The rules keep changing. This is not how long-term investment should be treated,” he said.

A simple example shows why.

Consider A and B.

• Both invest Rs5 lakh in the same equity fund.
• A holds for 7 years; B sells after 10 months.
• Both walk away with Rs8 lakh, gains of Rs3 lakh each.

Under current rules:

• A pays LTCG tax on Rs1.75 lakh (after Rs1.25 lakh exemption), taxed at 12.5% = Rs21,875.
• B pays STCG tax on full Rs3 lakh at 20% = Rs60,000.
• At first glance, A pays less. But here's the catch:
• A gets no indexation, even though part of A's Rs3 lakh gain is just inflation over 7 years.
• If inflation averaged 5%, A's real gain is much lower but tax is levied on the full nominal amount.
• Also, A committed long-term capital under older tax rules only to see rates rise mid-way.

This is the "policy risk" both highlight.

Their proposal:

• Restore indexation to reflect real gains.
• Cut LTCG back to 10% or less for long-term equity.
• Lower STCG to support market depth but focus tax relief on long-hold investors like A.

They argue this would reward patience, deepen domestic capital markets, and build resilience when foreign money exits as seen in 2025, when FPIs withdrew Rs1.6 lakh crore, but domestic investors stepped in with Rs7 lakh crore.