As India moves closer to the presentation of the Union Budget 2026–27, capital market participants are voicing strong expectations for meaningful tax reforms aimed at boosting long-term investing and improving market efficiency. Investors, brokerages, and financial experts believe that rationalising capital gains taxation and transaction-related levies could significantly strengthen market sentiment at a time of global uncertainty.

Demand for Higher LTCG Exemption

One of the most prominent demands from the markets is an increase in the exemption limit on Long-Term Capital Gains (LTCG) from equity investments. At present, long-term gains above ₹1.25 lakh are taxed, a threshold that many experts feel has lost relevance due to inflation and the rising participation of retail investors.

Market participants are seeking a higher exemption limit to provide relief to long-term investors and to reinforce the culture of disciplined investing. A higher LTCG exemption is also seen as a way to channel household savings into productive financial assets rather than speculative avenues.

Push to Reduce Transaction Taxes

Another key concern highlighted ahead of Budget 2026 is the burden of transaction-related taxes, particularly the Securities Transaction Tax (STT). Industry voices argue that higher transaction costs discourage genuine investment activity and reduce market liquidity.

Experts have urged the government to avoid any increase in STT and instead consider rationalising its structure. Lower transaction taxes on cash market trades, compared to derivatives, could encourage long-term equity participation and curb excessive speculation.

Simplifying Capital Gains Rules

Markets are also calling for simplification of capital gains taxation. Currently, different asset classes follow different holding period rules to qualify as long-term investments, creating complexity for investors. A uniform definition of “long-term” across asset classes is being proposed to improve clarity, ease compliance, and enhance investor confidence.

Additionally, allowing greater flexibility in setting off capital losses against other income sources is seen as a reform that would align India’s tax framework with global best practices.

Dividend and Buyback Taxation in Focus

Investors have also raised concerns about dividend and share buyback taxation. There is a view that taxing only the profit component of buybacks, rather than the entire payout, would be a more equitable approach. Aligning dividend tax treatment for domestic investors with that of non-resident investors is another suggestion aimed at creating a fairer tax environment.

Broader Impact on Market Sentiment

Market experts believe that these tax reforms, if addressed in Budget 2026, could significantly enhance investor participation, particularly from retail investors. A predictable and investor-friendly tax regime would not only deepen India’s capital markets but also support long-term wealth creation and economic growth.

At a time when India is positioning itself as a global investment destination, stakeholders feel that Budget 2026 presents an opportunity to strike the right balance between revenue generation and market development.

Looking Ahead

While the final decisions will rest with the government, expectations remain high that Budget 2026 will acknowledge the concerns of the capital markets. Any positive move on LTCG exemption, transaction taxes, or simplification of tax rules could act as a strong catalyst for equities in the coming financial year.

For investors, the upcoming budget is not just about tax relief—it is about setting the tone for sustainable and long-term market growth.