Budget 2026: The market of discussions regarding Union Budget 2026 has started heating up. This is the time of the financial year when every taxpayer and investor of the country looks towards the Finance Ministry with hopeful eyes. You will remember that Finance Minister Nirmala Sitharaman had made major changes in the structure of capital gains tax in the budget presented in July 2024. At that time the government had argued for simplifying the tax rules, but these changes had increased the burden on the pockets of investors. Now once again tax experts and market experts have placed before the government a demand for reforms in the old systems. The biggest demand in this is to reduce the Long Term Capital Gains (LTCG) tax and reintroduce the benefit of indexation.
The most surprising decision in the budget of July 2024 was to reduce the LTCG tax to a uniform 12.5 percent. In this, all assets like stock market, mutual funds, real estate and gold were brought under one umbrella. Now before Budget 2026, experts say that the government should reconsider this rate.
Kunal Savani, partner at Cyril Amarchand Mangaldas, believes that LTCG tax should be reduced from the current 12.5 percent back to 10 percent. He argues that this will not only reduce the liability of taxpayers, but will also give a big boost to investment in India. If the tax is reduced, the net return of investors will increase, which will encourage them to invest more money in the market.
There is a demand to increase not only the tax rate but also the limit above which no tax is levied. At present, no tax has to be paid on long term capital gains up to Rs 1.25 lakh. But considering the rising inflation and the size of the market, this limit seems less.
According to Ankit Jain, partner, Ved Jain & Associates, this tax-free limit should be increased from Rs 1.25 lakh to Rs 2 lakh or Rs 2.5 lakh. This will provide direct relief to small and middle class retail investors. Additionally, there is confusion regarding the 'holding period' (the time frame after which an asset is considered long term) for different assets. Currently for mutual funds it is one year, while for real estate it is two years. Experts want that this rule should be uniform and simple for all assets.
The biggest shock for investors, especially those investing in real estate and debt funds, was the end of 'indexation benefits'. Indexation was a method of calculating tax by increasing your purchase price in proportion to inflation, resulting in lower taxes. It was removed in July 2024.
Tax experts say that the government should reinstate the benefit of indexation on long term savings instruments. With its removal, the problems of those investing in gold and property have increased considerably. The market expects that at least the government may provide the facility of re-indexation on debt mutual funds held for more than 36 months.
However, if we look at the global level, capital gains tax in India is still lower than many developed countries. In Japan it is 20 percent and in UK it is up to 24 percent.
