Industry chamber PHDCCI has formally asked the income tax department to abolish long-term capital gains tax on listed equities, and to rationalise short-term capital gains and Securities Transaction Tax rates. In a recommendation submitted to the Central Board of Direct Taxes, the chamber argues that the current structure is pushing money out of Indian stock markets at the worst possible time.

The timing is hard to ignore. Foreign Portfolio Investors have pulled out a record Rs 3.08 lakh crore (USD 32.73 billion) from Indian equities during January-September 2026. That is nearly double the Rs 1.66 lakh crore withdrawn in the entire calendar year 2025.

The ask: scrap LTCG and rethink the holding period

PHDCCI wants a complete abolition of the LTCG tax on equities. It also proposes raising the holding period needed to qualify as long-term from 12 months to 18-24 months. The chamber says that change would ensure the exemption is available to genuine investors.

Under current rules, gains on listed equity and equity mutual funds above Rs 1.25 lakh are taxed at 12.5 per cent, plus surcharge and cess. The investment must be held for more than 12 months from the date of acquisition to qualify. Sell within 12 months and a 20 per cent tax applies to short-term gains.

On short-term gains, PHDCCI suggests cutting the STCG rate from 20 per cent to 10 per cent. Alternatively, it wants the STT rates reduced. For a trader or long-term holder watching their post-tax returns, that is a direct hit to the bottom line either way.

The double taxation argument

The core of PHDCCI’s case is that equity investors are paying twice. With Securities Transaction Tax and capital gains tax both applied, the chamber says the same investment is taxed through multiple levies. Its submission puts the argument bluntly:

“Taxing the same economic activity through multiple levies can discourage investment and wealth creation. A more balanced tax regime can encourage investment, improve household wealth and spending power, stimulate economic activity, and generate additional revenue through GST and other indirect taxes,” PHDCCI said.

The chamber also frames tax relief as something that could pay for itself. It argues that a more balanced regime would generate additional revenue through GST and other indirect taxes.

The money the government is counting on

The numbers explain why this debate carries real weight. The government has budgeted to collect Rs 73,700 crore from STT in the current fiscal, up from Rs 57,522 crore collected in the last fiscal. Between April 1 and October 14 this fiscal, STT mop-up already swelled about 52 per cent to Rs 46,840 crore.

That creates the central tension of the proposal. The state is counting on rising STT receipts, while the chamber argues those same levies are helping drive capital away. Any change to rates would have to balance that revenue target against the outflow problem.

Why foreign money is the real pressure point

PHDCCI argues that rationalising these tax rates would play an important role in retaining foreign capital in India, reducing outflows and attracting further investments. It says the move could also improve India’s investment appeal at a time when global money is heading for the exits.

The record FPI withdrawal gives the chamber’s argument urgency. When foreign funds leave in such large numbers, every tax line that affects their returns becomes a live issue for policymakers.

Finance Ministry hears the industry

Industry chambers are now sending their recommendations to the Finance Ministry on equity market taxation. Finance Minister Nirmala Sitharaman said earlier this month that many comments had come in from investors, along with a debate around long-term capital gains tax and STT. On October 13, she said, “It’s healthy to have this debate, and I will be keenly hearing them.”

That statement signals the government is open to input, but it does not commit to any specific change. For now, the proposals sit in the Finance Ministry’s inbox alongside investor feedback.

How India got here

Nangia Global director Naitik Doshi traced how often the rules have shifted. India introduced an LTCG exemption in 2004, reintroduced the tax in 2018, and in July 2024 raised LTCG and STCG rates to 12.5 per cent and 20 per cent, respectively, alongside STT. “As the government revisits the framework, greater predictability and rationalisation of the overall tax burden would be welcome,” Doshi said.

Doshi also flagged a specific reform. He suggested extending foreign-currency-based capital gains computation to eligible FPIs investing in listed equities. Specified non-residents already have a similar mechanism for shares and debentures of Indian companies.

According to Doshi, that change would separate genuine investment returns from gains that arise solely because of rupee depreciation. For a foreign investor, that distinction can decide whether a profitable-looking exit is actually a profitable one in their home currency.

What comes next

The chamber’s proposals are one input among several as the Finance Ministry weighs equity market taxation. Investors will be watching three levers: the LTCG exemption itself, the 12-month holding period, and the STCG and STT rates. Any move on those would change how money flows in and out of Indian stocks.