LTCG Tax News 2026: Indian stock market investors could receive significant tax relief if the government considers a new set of recommendations from SBI Research. The research division of the State Bank of India has reportedly proposed eliminating Long-Term Capital Gains (LTCG) tax on eligible equity investments held for more than three years.

The proposal also recommends increasing the annual LTCG exemption limit for retail investors from ₹1.25 lakh to ₹2 lakh. Another important suggestion involves introducing different tax rates based on how long investors retain their equity investments.

According to a report published on November 3, 2026, SBI Research believes these changes could encourage long-term investment, improve market participation and make Indian equities more attractive to foreign investors.

However, these are research recommendations, not government-approved tax changes. The existing capital gains tax provisions will continue to apply unless the government formally announces and implements amendments.

SBI Research Suggests Major Changes to LTCG Tax Rules

SBI Research has reportedly outlined its recommendations in its latest Ecowrap report, focusing on reforms that could support India's equity market.

The central proposal is to provide greater tax benefits to investors who hold shares for longer periods.

Currently, qualifying long-term capital gains from listed equity shares and equity-oriented mutual funds are generally subject to a 12.5% tax on annual gains exceeding ₹1.25 lakh, subject to applicable conditions.

SBI Research has suggested replacing this structure with a holding-period-based system that would reward investors who remain invested for several years.

Under the proposed framework, equity investments held beyond three years could become eligible for a zero LTCG tax rate.

The report argues that such a measure could strengthen long-term participation in Indian financial markets.

New LTCG Tax Structure Proposed by SBI Research

One of the most important recommendations involves introducing different tax rates depending on the investment holding period.

Proposed tax rates for eligible equity gains

1–2 years

12.5%

2–3 years

5%

Over 3 years

0%

These rates are SBI Research recommendations reported on November 3, 2026. They are not currently enacted tax slabs.

If implemented, this structure would create a direct tax incentive for investors to hold eligible equity investments for longer durations.

For example, an investor selling qualifying shares after more than three years could potentially avoid LTCG tax on the eligible gains.

However, the final scope, conditions and applicability would depend on the government's decision.

LTCG Exemption Limit Could Increase to ₹2 Lakh

Another significant proposal focuses on increasing the annual tax-free capital gains threshold for retail investors.

SBI Research has recommended raising the existing ₹1.25 lakh exemption limit to ₹2 lakh.

The report also suggests linking the exemption threshold to inflation so that the benefit does not gradually lose value over time.

If implemented, the higher threshold could reduce tax liability for small investors who periodically book profits from equity investments.

For example, an investor earning ₹1.80 lakh in qualifying long-term capital gains during a financial year may not have to pay LTCG tax on those gains under the proposed ₹2 lakh exemption, assuming all relevant conditions are satisfied.

Under the existing ₹1.25 lakh threshold, a portion of those gains would generally be taxable.

How Much Tax Could Investors Save?

The potential benefit can be illustrated using a hypothetical example.

Suppose an investor earns ₹5 lakh in qualifying long-term capital gains from listed equity shares.

Under the existing framework, the basic LTCG tax calculation would be:

If SBI Research's proposal for zero tax on eligible equity investments held beyond three years were adopted without additional restrictions, the LTCG tax on those gains could potentially become zero.

That would represent a substantial reduction in tax liability.

However, this illustration excludes surcharge, capital losses, special circumstances and other tax considerations.

The actual savings would depend on the final legislation and the investor's individual circumstances.

Why Does SBI Research Want LTCG Tax Reduced?

The recommendations come against the backdrop of changing stock market conditions and foreign investment flows.

According to the source report, LTCG tax collections increased to approximately ₹1.3 lakh crore in FY2024-25, supported by strong equity market performance during the preceding period.

However, SBI Research reportedly expects collections to moderate as market returns and investor activity change.

The report highlights that the Nifty delivered an average return of approximately 0.5% over the referenced three-year period, while foreign portfolio investors withdrew around ₹4.8 lakh crore.

These figures were cited to support the argument that changes to equity taxation could improve India's investment environment.

The report also suggests that reducing capital gains taxation may encourage investors to maintain longer-term positions rather than frequently exiting the market.

Government Revenue Loss Could Reach ₹50,000 Crore

One major concern surrounding LTCG tax relief is its potential impact on government revenue.

According to SBI Research estimates cited in the report, LTCG tax collections could decline to approximately ₹1 lakh crore in FY2025-26 and further to ₹40,000–₹50,000 crore in FY2026-27.

If the government were to eliminate LTCG tax under the proposed framework, the estimated revenue impact in FY2027-28 could be between ₹40,000 crore and ₹50,000 crore.

The research report argues that this amount would represent approximately 0.1%–0.2% of India's GDP.

On that basis, SBI Research believes the government may have room to consider the reform without substantially disrupting its fiscal consolidation plans.

However, the actual fiscal impact would depend on market performance, investor behaviour, the final tax structure and other government revenue measures.

SBI Research Recommends 50% Increase in Securities Transaction Tax

To compensate for the potential loss of LTCG revenue, SBI Research has proposed increasing the Securities Transaction Tax (STT) by 50%.

STT is charged on specified transactions involving securities, including eligible stock market purchases and sales.

Unlike capital gains tax, which depends on realised profits, STT is linked to the transaction itself.

According to the report, a 50% increase in STT could potentially generate approximately ₹45,000 crore in additional government revenue during FY2027-28.

This additional collection could help offset the estimated revenue loss resulting from lower LTCG taxation.

However, higher transaction taxes could also increase trading costs, particularly for investors and traders who frequently buy and sell securities.

The proposal therefore involves a trade-off between lower taxation on long-term gains and higher costs on securities transactions.

Mutual Fund Investors Could Get Reinvestment-Based Tax Relief

SBI Research has also suggested a special provision for equity mutual fund investors.

Under the recommendation, investors redeeming eligible equity mutual fund units could potentially defer LTCG tax if the proceeds are reinvested in another qualifying equity mutual fund within 90 days.

The objective is to encourage investors to keep their money invested in equity markets rather than withdrawing it permanently.

For example, an investor switching from one equity mutual fund scheme to another could potentially benefit from tax deferral if the transaction satisfies the proposed conditions.

It is important to understand that tax deferral is different from a permanent tax exemption.

Under a deferral arrangement, the tax liability may arise at a later stage, depending on the rules introduced.

At present, investors should not assume that reinvesting mutual fund redemption proceeds within 90 days automatically eliminates capital gains tax.

Can LTCG Tax Changes Attract Foreign Investors?

The report also focuses on the role of Foreign Portfolio Investors (FPIs) in Indian equity markets.

According to the figures cited by SBI Research, foreign investors withdrew approximately ₹4.8 lakh crore during the referenced three-year period.

The research suggests that a more favourable long-term capital gains tax structure could make Indian equities more competitive internationally.

Lower taxation on long-term investment profits may improve post-tax returns for foreign investors.

However, foreign investment decisions also depend on corporate earnings, market valuations, currency movements, global interest rates and geopolitical developments.

Therefore, reducing LTCG tax alone would not guarantee an immediate return of foreign capital.

Has the Government Approved the LTCG Tax Exemption?

No government approval for the proposed three-year LTCG tax exemption is established in the supplied report.

The recommendations have been presented by SBI Research as possible policy reforms.

Any change to capital gains taxation would require appropriate government action and changes to the applicable tax framework.

Until such changes are officially notified, investors should continue calculating their tax liability under the existing rules.

Investors should also distinguish between research recommendations, regulatory consultations and legally effective tax provisions.

What Should Stock Market Investors Do Now?

Investors should avoid changing their investment strategies solely because of expectations surrounding potential tax relief.

Holding shares for longer periods can have advantages, but investment decisions should primarily depend on financial goals, portfolio diversification, company fundamentals and risk tolerance.

Tax benefits are only one factor in determining whether an investment is suitable.

Investors planning to sell shares or redeem mutual funds should calculate their expected capital gains tax under the currently applicable provisions.

They should also monitor official announcements from the Ministry of Finance, the Income Tax Department and other relevant authorities for any future changes.

Conclusion

SBI Research's latest recommendations could lead to a significant discussion about the future of long-term capital gains taxation in India.

The proposals include eliminating LTCG tax on eligible equity investments held for more than three years, increasing the annual exemption threshold to ₹2 lakh, introducing a 5% tax rate for gains on investments held between two and three years, and raising STT by 50%.

The report also recommends reinvestment-based tax deferral for qualifying equity mutual fund transactions and suggests that the government could absorb an estimated ₹40,000–₹50,000 crore revenue impact.

For now, these measures remain proposals rather than confirmed tax benefits. Investors will need to wait for an official government decision before any new rules can take effect.

Disclaimer: This article is intended for informational purposes only and does not constitute tax, legal or investment advice. Capital gains tax treatment depends on the type of asset, holding period and applicable legislation. Investors should consult a qualified tax professional before making investment or redemption decisions.