Every Union Budget reshapes how investors think, and Budget 2026 might not be an exception either. With markets evolving and asset classes blurring lines, capital gains taxation has become the centre of attraction for equity, debt, and alternative investors alike. So, what does budget 2026 bring?
The prior events before Budget 2026 hint at possible adjustments in capital gain tax, holding periods, and exemptions. These recent updates suggest that the focus might shift towards simplification and alignment across asset classes.
Stay tuned to know more about capital gain tax, Budget 2026 changes in capital gains taxes, and overall budget 2026 expectations.
Budget 2026 Capital Gains Tax Change
In Budget 2026, capital gains taxes are unlikely to change. The analysts state that the short-term and long-term capital gains tax rate might remain the same, which underwent a major overhaul in the 2024-25 Budget, setting STCG at 20% and LTCG at 12.5% with an annual exemption raised to ₹1.25 lakh.
However, ahead of the 2026-27 Budget, there’s an expectation that the LTCG exemption might be increased from ₹1.25 lakh to ₹2 lakh to encourage long-term investing.
What is Capital Gain Tax?
Capital gain tax is the tax you pay on the gains/profits earned from the sale of a financial asset, such as equity shares, debt securities, mutual funds, commodities, and currencies. When the selling price is higher than the purchasing price, the difference is capital gain.
Now, based on the holding period of the financial year, capital gains are either short-term or long-term, and both these categories are subject to different tax rates, rules, and benefits.
Types of Capital Gain Tax
As discussed above, capital gains are of two types: Short-term capital gains (STCG) and long-term capital gains (LTCG). Let’s discuss them briefly!
- Short-term capital gains: STCG arises from the sale of assets within 12 months or 1 year of purchasing, in case of equity shares and equity mutual funds, with a rate fixed at a flat 20%. The gains from the sale of other assets are added to income and taxed at applicable slab rates.
- Long-term capital gains: LTCG arises from the sale of assets held for 12 months or more. These gains are taxable at 12.5% with an annual exemption of ₹1.25 lakh with no indexation benefits, effective from 23 July 2024.
What are experts’ expectations from Budget 2026 in terms of capital gain tax rule changes?
The experts see rationalisation and simplification of the capital gain tax rules in Budget 2026. Many taxpayers want more consistent holding periods and clear tax treatment across asset classes to reduce mismatches in taxation.
There’s an expectation to raise the LTCG exemption limit to ₹2 lakh from ₹1.25 lakh, which would provide long-term investors more breathing space. Some industries also want the tax regime to support senior citizens by aligning rebate rules with capital gains, offering targeted relief to the segment.
While there aren’t any major rate cut changes, experts talk about bringing more clarity, consistency, and incremental relief, especially focusing on encouraging long-term investing.
Capital Gains Taxes Earlier
Here’s a highlight of how capital gains taxes were structured back in 2018 and the changes 2024 brought into effect.
Budget 2018
In 2018, the government of India introduced Section 112A, which brought a capital gains tax regime for listed equity and some funds.
- LTCG above ₹1 lakh on equity-oriented funds was taxed at 10%, without indexation, which was effective from 1 April 2018.
- STCG was taxed at 15%.
2024 changes
This is what the 2024 Budget brought:
- The LTCG tax rate was increased to 12.5% from 10% on listed equities, and the annual exemption was increased to ₹1.25 lakh, with no indexation.
- STCG was increased from 15% to 20%.
FPI Sell-Off
Foreign portfolio investors (FPIs) have been selling their Indian equities noticeably, with a net outflow of ₹33,598 crore so far in January 2026, which is the biggest monthly sell-off since August 2025. In 2025-26, the FPI selloff hit ₹1,66,286 crore as foreign investors were the net sellers in 8 out of 12 months. This selling pressure by FPIs weighed on the Nifty and Indian financial markets and contributed to a drop in overall market capitalisation as foreign funds exited positions.
Why Budget 2026 Matters
For the coming Budget 2026, markets are navigating through a delicate phase where tax certainty and investor confidence move together. After a period of heavy FPI selling and shifting asset allocations, even modest policy signals can influence how investors position their capital.
With these revised capital gains tax rules, Budget 2026 is expected to focus more on consistency and clear direction towards taxation, which would help investors to plan holding periods, manage risk, and assess post-tax returns more accurately.
Budget 2026 Expectation
Here are the Budget 2026 expectations:
- There might be an increase in the standard deduction from ₹75,000 to ₹1 lakh, in order to address inflation.
- LTCG exemption threshold might be increased from ₹1.25 lakh to ₹2 lakh, to reward long-term investors.
- With medical inflation ranging around 11-14%, a higher health insurance deduction under Section 80D might be offered.
- A home loan interest relief might be offered, especially to those purchasing for the first time.
Conclusion
As Budget 2026 approaches, capital gains taxation sits at the intersection of policy stability and investor confidence. With rates largely settled, the real focus is on clarity, consistency, and targeted relief. Even small refinements, especially around exemptions, can shape long-term investment behaviour and influence market participation in the upcoming cycle.
