Budget 2026 Expectations: Investors Seek 10% LTCG Tax and Return of Indexation Benefits

As the Union Budget 2026 approaches, expectations are rising among taxpayers and investors for meaningful reforms in capital gains taxation. Tax experts and market participants are urging the government to rationalise Long-Term Capital Gains (LTCG) tax rules by reducing the tax rate to 10 percent and reintroducing indexation benefits, especially for long-term savings instruments. These changes, they believe, could boost investor confidence, improve post-tax returns, and encourage long-term investment across asset classes.

Background: Major Changes in Budget 2024

In the Union Budget presented in July 2024, Finance Minister Nirmala Sitharaman announced a significant overhaul of capital gains taxation. One of the key changes was the introduction of a uniform 12.5 percent LTCG tax across multiple asset classes. This applied to equity mutual fund schemes, listed shares, real estate, gold, and other long-term investments.

At the same time, the government removed indexation benefits for certain assets, a move that altered how inflation-adjusted gains were calculated. While the objective was to simplify the tax structure, many investors felt the changes increased their tax burden, particularly in assets like real estate, gold, and debt mutual funds.

Demand to Reduce LTCG Tax to 10 Percent

Ahead of Budget 2026, tax professionals are once again calling for a reduction in the LTCG tax rate from 12.5 percent to 10 percent. According to experts, a lower tax rate would leave more money in the hands of investors and make Indian markets more attractive for long-term capital.

Kunal Savani, Partner at Cyril Amarchand Mangaldas, believes that cutting the LTCG tax rate could have a positive ripple effect. He points out that a 10 percent tax rate would not only reduce the tax liability for individuals but also help revive investment sentiment in India, especially at a time when global markets remain uncertain.

Calls for Uniform Holding Period Rules

Another key demand relates to simplifying holding period rules across asset classes. Currently, different assets have different timelines to qualify as long-term investments. For example, equity mutual funds become long-term after one year, while real estate requires a holding period of two years.

Experts argue that having a common holding period for all asset classes would reduce confusion, simplify compliance, and make tax planning easier for retail investors.

Proposal to Increase LTCG Exemption Limit

There is also a growing demand to raise the tax-free LTCG exemption limit. At present, long-term capital gains up to ₹1.25 lakh are exempt from tax. Ankit Jain, Partner at Ved Jain & Associates, suggests increasing this threshold to ₹2 lakh or even ₹2.5 lakh.

According to him, a higher exemption limit would provide meaningful relief to small and retail investors, who often invest for long-term goals such as retirement, education, or home ownership. It could also encourage disciplined investing without significantly impacting government revenue.

However, some experts caution that a reduction in the LTCG rate may not be guaranteed. They note that India’s capital gains tax is already lower compared to countries like Japan, where it stands at around 20 percent, and the UK, where it can go up to 24 percent.

Strong Push for Return of Indexation Benefits

One of the most critical expectations from Budget 2026 is the reintroduction of indexation benefits for long-term savings instruments. The removal of indexation in Budget 2024 has particularly affected investors in real estate, gold, and debt mutual funds, as inflation significantly impacts real returns in these asset classes.

Tax experts believe that restoring indexation benefits—especially for debt mutual funds held for more than 36 months—would ensure fair taxation by accounting for inflation. This would make long-term investments more attractive and align tax policy with the goal of promoting financial stability.

What Lies Ahead

As Finance Minister Nirmala Sitharaman prepares to present Union Budget 2026, all eyes are on whether the government will address these concerns. While fiscal constraints and revenue considerations remain important, investors are hopeful that some relief measures—such as lower LTCG tax, higher exemption limits, or partial restoration of indexation—will find a place in the upcoming budget.

Any move in this direction could significantly influence investment behaviour and strengthen India’s long-term savings and investment ecosystem.