India Equity LTCG Tax Timeline: Major Policy Changes Since 2003

From Equity Tax Break to Fresh Relief Debate: India’s LTCG Policy Turns

India’s equity tax rules have shifted repeatedly, and Sebi’s latest proposals have reopened the debate over how capital gains taxation affects investors.

The latest proposals arrive against a long history of policy changes that have altered the after-tax return on equity investments. For retail investors, the timeline matters not only because rates and exemption thresholds have changed, but also because tax rules can influence when gains are realised and how investors manage their portfolios.

A tax exemption became part of the equity-investment framework

Before the exemption introduced in 2003, long-term gains on listed equities were taxable under the applicable provisions. Finance Minister Jaswant Singh announced a temporary exemption for qualifying shares acquired from March 1, 2003, and held for at least a year. The measure was intended to support capital-market investment.

The UPA government then replaced that temporary approach with a broader change. In 2004, Finance Minister P Chidambaram proposed abolishing LTCG tax on qualifying securities transactions and introducing Securities Transaction Tax (STT), set at 0.15% of transaction value and payable by the buyer. The framework took effect on October 1, 2004, with qualifying long-term gains exempt from tax where the sale was chargeable to STT.

Tighter conditions preceded the 2018 return of tax

The exemption was later tightened after concerns that it could be used to present unaccounted money as tax-free gains. Changes under the Finance Act, 2017, generally required STT to have been paid on both purchase and sale for shares bought on or after October 2004 to qualify for the exemption. The tax authorities also set out exceptions subject to safeguards.

In the 2018-19 Budget, the government brought qualifying long-term gains from listed shares, equity-oriented mutual funds and business trust units back under the tax net through Section 112A. Gains above ₹1 lakh in a year were taxed at 10%, without indexation. Investors could therefore face both applicable STT and income tax on gains above the threshold.

The 2024 changes raised the rate but lifted the threshold

The 2024 Budget increased the LTCG rate on qualifying listed equities from 10% to 12.5%, while raising the annual exemption threshold from ₹1 lakh to ₹1.25 lakh. The changes applied to transfers made on or after July 23, 2024. The short-term capital gains rate on specified STT-paid equity investments also rose, from 15% to 20%.

For investors, the higher LTCG rate can reduce the amount retained from taxable gains, while the higher threshold provides a larger tax-free band. The impact will depend on an investor’s realised gains and whether the investment meets the relevant conditions; the headline rate alone does not determine an individual tax bill.

Sebi’s proposals would address two different investor concerns

The debate has returned amid concerns over sustained foreign investor outflows. Sebi has recommended removing LTCG tax for FPIs. It has also proposed tax relief for domestic mutual fund investors switching from one scheme to another after holding units for more than a year. The government has not accepted either proposal.

The two recommendations have distinct implications. Relief for FPIs could change the tax treatment of overseas equity investment, while relief for qualifying mutual fund switches could reduce the tax friction involved in changing schemes. Neither should be treated as an existing exemption: the government said in July 2026 that no proposal to abolish equity LTCG tax was under consideration and that the 12.5% rate applied equally to domestic retail investors and FPIs.

Key Highlights

• Qualifying equity LTCG was exempted under the framework that took effect in 2004, with STT conditions.
• The exemption was tightened in 2017 amid concerns about misuse.
• Section 112A restored a 10% tax on qualifying annual gains above ₹1 lakh in 2018.
• Since July 23, 2024, the rate is 12.5% and the annual threshold is ₹1.25 lakh.
• Sebi’s suggested FPI and mutual fund switching relief remains a recommendation, not an approved policy change.

Investor Note: Investors should plan around the rules currently in force rather than assume Sebi’s proposals will be adopted. Any future change could affect the tax cost of realising gains or switching schemes, but its terms and implementation would need to be assessed once officially decided.