Scrapping LTCG tax feasible with ₹40,000–50,000 crore revenue hit: SBI Research
Synopsis
SBI Research has put a number on the cost of scrapping LTCG tax entirely: just ₹40,000–50,000 crore in FY28, or 0.1–0.2% of GDP. With Nifty returns near flat over three years and FII outflows at ₹4.8 lakh crore, the revenue at risk has shrunk — making a full LTCG abolition more fiscally credible now than at any point since the tax was reintroduced in 2018.
Key Takeaways
Abolishing LTCG tax would cost the government roughly ₹40,000–50,000 crore in FY28 , or 0.1–0.2% of GDP , according to SBI Research .
LTCG collections are estimated at ₹1 lakh crore in FY26 , down from a peak of ₹1.3 lakh crore in FY25 .
The Nifty's three-year average return stands at just 0.5 per cent ; cumulative FII outflows have hit ₹4.8 lakh crore .
The report proposes raising the annual exemption limit from ₹1.25 lakh to ₹2 lakh and linking it to inflation.
A tiered rate structure is proposed: 12.5% for 1–2 year holdings, 5% for 2–3 years, and zero tax for holdings beyond three years .
Deposit tax reform would add another ₹12,000 crore in combined revenue foregone, the report estimates.
The government could fully abolish long-term capital gains (LTCG) tax without meaningfully derailing its fiscal consolidation path, according to a report by SBI Research released on Tuesday, 3 November 2026. The estimated revenue loss — capped at ₹40,000–50,000 crore in FY28 — would amount to just 0.1–0.2 per cent of GDP, a level the report argues the government could absorb while keeping fiscal deficit targets broadly intact.
The Revenue Math
LTCG collections are estimated at around ₹1 lakh crore in FY26, down sharply from ₹1.3 lakh crore collected in FY25. The FY25 figure, the report notes, was inflated by exceptional market conditions — Indian equities delivered returns of roughly 30 per cent in the preceding year, prompting large-scale profit booking by foreign investors. Collections are projected to slide further to ₹40,000–50,000 crore in FY27, reflecting a far cooler market environment.
'We believe the government would be able to take this hit if hypothetically, the entire capital gains taxes were abolished,' the SBI Research report stated.
Why the Market Context Has Shifted
The backdrop for any such reform is materially different from the boom years. The Nifty's average return over the last three years stands at just 0.5 per cent, while cumulative foreign institutional investor (FII) outflows have reached ₹4.8 lakh crore. This compression in LTCG-generating activity is precisely why the revenue cost of abolition looks manageable in the near term.
Notably, this is the context in which calls for structural tax simplification tend to gain policy traction — when the revenue at stake has already declined and the argument for investor re-engagement is strongest.
Proposed Structural Reforms to Capital Gains Tax
Beyond outright abolition, the report recommends a tiered reform of the capital gains framework. Key proposals include:
Raising the annual LTCG exemption threshold from ₹1.25 lakh to ₹2 lakh and indexing it to inflation, offering more meaningful relief to retail investors. The report also proposes a sliding rate structure: gains on investments held between one and two years would attract the existing 12.5 per cent rate; gains on assets held for two to three years would attract a reduced 5 per cent rate; and assets held for over three years would attract zero LTCG tax — effectively a long-horizon incentive to promote patient capital.
Deposit Taxation and Combined Revenue Impact
The report also examined the tax treatment of savings and term deposits. It estimated that replacing the current maturity-based tax structure on term deposits with a flat 15 per cent rate across all maturities would result in a revenue foregone figure of approximately ₹10,500 crore. Combined with savings deposit changes, total foregone revenue from deposit taxation reform would amount to around ₹12,000 crore, according to the report's estimates.
With fiscal consolidation broadly on track and capital markets under pressure from sustained FII outflows, the window for a structural LTCG overhaul — and its political appeal ahead of the Union Budget — appears wider than it has in years.
Point of View
And the timing is deliberate. With LTCG collections having already slumped from ₹1.3 lakh crore to a projected ₹40,000–50,000 crore, the revenue cost of abolition has collapsed — making the political case easier precisely when the economic case for reviving equity participation is strongest. The deeper question the report sidesteps is whether scrapping LTCG would actually bring FIIs back or simply reward domestic investors already in the market. India has tried supply-side tax cuts before without structurally altering FII sentiment, which is driven more by currency stability and US rate differentials than by domestic capital gains rates. The tiered holding-period proposal is the more interesting structural idea — nudging investors toward longer horizons aligns with the government's infrastructure financing ambitions — but it too needs a credible anti-avoidance framework to prevent gaming through frequent restructuring.
NationPress
3 Nov 2026
Frequently Asked Questions
What did the SBI Research report say about abolishing LTCG tax?
The SBI Research report, released on 3 November 2026, estimated that fully abolishing long-term capital gains tax would reduce government revenue by ₹40,000–50,000 crore in FY28, equivalent to just 0.1–0.2 per cent of GDP — a level it said the government could absorb without materially disrupting its fiscal consolidation roadmap.
Why has LTCG revenue fallen so sharply from FY25 levels?
LTCG collections peaked at ₹1.3 lakh crore in FY25, inflated by exceptional equity market conditions — Indian stocks delivered around 30 per cent returns that year, prompting heavy profit booking by foreign investors. Since then, the Nifty's three-year average return has fallen to just 0.5 per cent and FII outflows have accumulated to ₹4.8 lakh crore, compressing the taxable gains base significantly.
What changes to the LTCG exemption limit has SBI Research proposed?
The report recommends raising the annual LTCG tax exemption threshold from the current ₹1.25 lakh to ₹2 lakh and indexing it to inflation going forward, to provide more meaningful relief to retail investors whose gains have been eroded by rising costs.
What is the proposed tiered capital gains tax structure?
SBI Research proposes a three-tier rate structure: gains on investments held between one and two years would attract the existing 12.5 per cent rate; a reduced 5 per cent rate for holdings of two to three years; and zero LTCG tax for assets held beyond three years — an incentive structure designed to encourage patient, long-horizon investing.
How much revenue would deposit tax reform cost under the SBI Research proposal?
Replacing the current maturity-ladder tax treatment of term deposits with a flat 15 per cent rate across all maturities would result in foregone revenue of around ₹10,500 crore. Combined with savings deposit changes, the total deposit-related revenue foregone would come to approximately ₹12,000 crore, according to the report.
