As the countdown to Budget 2026 begins, millions of taxpayers and investors are watching closely. With inflation still pinching household budgets and market volatility keeping investors cautious, expectations are high that Finance Minister Nirmala Sitharaman could announce meaningful tax relief. At the centre of the discussion is capital gains tax — a space where frequent rule changes have left investors confused and asking for clarity.
Why capital gains tax is back in focus
Capital gains taxation has seen several twists over the last two decades. Earlier, long-term capital gains (LTCG) on many assets were taxed at 20% with indexation, which adjusted purchase prices for inflation and lowered the effective tax burden.
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In 2004, the government introduced Securities Transaction Tax (STT) and, in return, exempted LTCG on listed shares and equity mutual funds. That phase is still remembered fondly by long-term equity investors.
The exemption, however, ended in 2018. LTCG on equity was reintroduced at 10% on gains above ₹1 lakh under Section 112A. Investors now paid both STT and LTCG, adding to the complexity — and the cost.
The 2024 shock that changed the math
Budget 2024 brought another major shift. Tax on listed shares and equity mutual funds was increased from 10% to 12.5%. For property, the rate was reduced to 12.5%, but the removal of indexation benefits proved to be the biggest blow.
Following criticism, the government allowed taxpayers holding property bought before July 23, 2024, to choose the old system of 20% tax with indexation. While the stated aim was simplification, the outcome left multiple rates, exceptions, and holding periods still in place.
Will STT finally be rolled back?
One of the biggest expectations from Budget 2026 is a rethink on STT. When introduced, STT was meant to replace LTCG. Today, investors pay both — something market experts call double taxation.
Removing or gradually reducing STT could improve market liquidity and lower transaction costs, especially for long-term retail investors. Many believe this is the simplest way to offer relief without hurting compliance.
Holding period confusion needs fixing
Another pain point is the different holding periods across assets. Listed shares qualify as long-term after 12 months, while unlisted shares require 24 months. Real estate follows yet another timeline.
Standardising holding periods could significantly reduce confusion and make tax filing easier, especially for small investors who don’t rely on professional advisors.
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Debt fund investors want fairness
Equity mutual fund investors enjoy relatively favourable rules, including a lower holding period and tax exemption on gains up to ₹1.25 lakh. Debt fund investors, however, are taxed strictly as per income slabs, regardless of how long they stay invested.
The removal of LTCG benefits on debt funds has hit conservative and middle-class investors hard. There is growing hope that Budget 2026 will restore some long-term incentives and bring parity across investment options.
What to expect
While no official confirmation has been made, the signals are clear. Simplifying capital gains tax, reducing double taxation, and aligning holding periods could go a long way in easing the financial burden on investors and restoring confidence.
All eyes are now on February, when the fine print of Budget 2026 will reveal whether these expectations turn into real relief.
