LTCG tax rules could undergo major changes if five recommendations made by SBI Research are considered by the government.
The proposals include increasing the annual tax exemption limit to ₹2 lakh, reducing tax rates for longer holding periods and allowing tax deferral when mutual fund redemption proceeds are reinvested.
In its November 2, 2026 edition of the Ecowrap report, SBI Research called for a broader review of India’s capital gains taxation framework.
The recommendations could affect investors holding listed shares and equity mutual funds, but they are proposals and not changes to the existing tax rules.
Increase LTCG Tax Exemption Limit to ₹2 Lakh
SBI Research has recommended increasing the annual exemption limit for eligible long-term capital gains from ₹1.25 lakh to ₹2 lakh.
It has also suggested linking the exemption threshold to inflation instead of keeping it fixed.
According to the report, the higher limit would better reflect the growing number of retail investors and changes in investment values.
If accepted, the proposal could allow eligible investors to realise a larger amount of long-term gains before paying tax.
At present, qualifying long-term capital gains from listed equity shares and equity-oriented mutual funds are generally taxed at 12.5% on gains exceeding the applicable annual exemption limit, subject to the relevant conditions.
Lower LTCG Tax for Longer Investment Periods
Another major recommendation is to introduce different tax rates based on how long an investor holds an eligible investment.
SBI Research has suggested retaining the 12.5% rate for investments held between one and two years, reducing it to 5% for holdings between two and three years, and making gains tax-free after three years.
The proposed structure is intended to encourage investors to remain invested for longer periods rather than frequently booking profits.
Investors who hold eligible shares or equity mutual funds for more than three years could benefit if the zero-tax proposal is accepted.
However, the current tax treatment will continue to apply unless the government formally announces a change.
Tax Deferral on Mutual Fund Reinvestment
SBI Research has also proposed allowing investors to defer LTCG tax when they redeem mutual fund investments and reinvest the proceeds in eligible equity mutual funds within 90 days.
Under this recommendation, the tax could be deferred proportionately according to the amount reinvested.
The proposal is aimed at giving investors greater flexibility to move money between eligible mutual fund schemes without immediately facing the full capital gains tax liability.
Such a provision could be relevant for investors who want to switch from one equity mutual fund scheme to another while continuing their investments in the market.
Increase STT and Review Bank Deposit Taxation
To compensate for possible revenue losses from LTCG tax concessions, SBI Research has suggested increasing Securities Transaction Tax (STT) rates by 50%.
The report estimates that this could generate around ₹45,000 crore in additional revenue in FY28.
The proposed STT changes include increasing the equity delivery rate from 0.10% to 0.15%, the futures rate from 0.05% to approximately 0.075%, and the options rate from 0.15% to approximately 0.225%.
The report has also highlighted the need to review taxation on bank deposits so that tax incentives for equity investments do not become disproportionately attractive compared with traditional savings.
Among its recommendations are raising the tax exemption limit on savings account interest from ₹10,000 to ₹20,000 and introducing a uniform 15% tax rate for term deposits, replacing the existing maturity-based treatment.
SBI Research estimates that these deposit-related changes could result in revenue foregone of around ₹12,000 crore.
 Could the Government Abolish LTCG Tax Completely?
Apart from the proposed changes, SBI Research has examined the possible impact of abolishing long-term capital gains tax altogether.
The report estimates that LTCG collections were around ₹1.29 lakh crore in FY25, could moderate to approximately ₹1 lakh crore in FY26 and may fall to ₹40,000–50,000 crore in FY27.
Based on these estimates, the report suggests that completely removing LTCG tax could result in a revenue shortfall of around ₹40,000–50,000 crore in FY28. This would be equivalent to approximately 0.1%–0.2% of GDP.
SBI Research believes the government could accommodate this potential revenue loss within its fiscal framework.
However, the estimates for FY26 and FY27 are projections rather than separately published official collection figures.
What Should Stock and Mutual Fund Investors Do?
For now, investors should not make investment or tax-planning decisions assuming that these recommendations have been approved.
The existing LTCG tax provisions remain applicable until the government announces any formal changes.
If the recommendations are considered in a future policy decision, they could influence how investors plan their holding periods, book profits and reinvest mutual fund proceeds.
Any final impact will depend on the provisions actually adopted by the government.
