SEBI's pre-budget submission for Budget 2027 recommends exempting investors from long-term capital gains tax when selling holdings to fund new scheme purchases. Currently, redemptions after 12 months trigger a 12.5% levy, while sales within a year incur a 20% short-term capital gains tax. Industry experts believe the change will foster sustained domestic market participation, though fiscal concerns remain paramount. To that point, State Bank of India estimates show a complete abolition of the LTCG tax could cost the government between Rs 40,000 crore and Rs 50,000 crore.
Key points
The regulator intends to remove transaction friction so retail investors can rebalance th…: The regulator intends to remove transaction friction so retail investors can rebalance their portfolios without tax penalties.
Industry bodies are pushing for broader relief, including complete exemptions for mutual…: Industry bodies are pushing for broader relief, including complete exemptions for mutual fund assets held over three years.
Policymakers must balance the promotion of long-term domestic investing against severe po…: Policymakers must balance the promotion of long-term domestic investing against severe potential hits to government revenue.
Sources checked by our analysis pipeline: 1
According to an ET report, the Securities and Exchange Board of India (SEBI) has reportedly proposed tax relief for domestic mutual fund investors. Under the proposal, investors would be exempted from long term capital gains (LTCG) tax when selling existing holdings to invest in new ones. SEBI has sent this as a pre-budget proposal to the government ahead of Budget 2027. It is up to the Finance Ministry to accept this proposal or implement it in some other way.
However, SBI estimates that abolishing LTCG could reduce government revenue by Rs 40,000–50,000 crore.
Also read: LTCG abolition may cost just Rs 40,000–50,000 crore, SBI estimates show
At present, selling a mutual fund after 12 months attracts 12.5% LTCG tax. Selling if within 12 months attracts 20% short term capital gains (STCG) tax. This tax also applies while switching from one fund to another. For example, if you invest in a small cap mutual fund and want to switch to a large cap mutual fund after 13 months, it will trigger 12.5% LTCG tax . If the government accepts the SEBI…
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