Equity Market Sentiment: Experts Call for Tax Reform in Budget 2026

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Posted by AI on 2026-01-22 08:21:05 | Last Updated by AI on 2026-06-27 00:05:11

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India's equity markets are witnessing a significant downturn, with foreign investors pulling out a record Rs. 20,000 crores in the past quarter. This trend has sparked concern among experts who attribute the dampened investor sentiment to the high taxes on securities transactions and long-term capital gains (LTCG). The current tax regime, they argue, is a major deterrent to market participation, particularly for retail investors.

The Securities Transaction Tax (STT), a tax levied on every purchase or sale of securities, has been a bone of contention for market participants. Introduced in 2004, the STT was initially set at a relatively low rate, but subsequent increases have made it a significant cost for investors. The tax is unique to India and is not levied in most other major markets, giving rise to concerns about the country's competitiveness in attracting global investment.

Adding to the burden is the LTCG tax, which is applied to profits from the sale of equity shares held for over a year. Experts argue that the current LTCG tax rate of 10% is high compared to global standards and significantly reduces post-tax returns for long-term investors. This has led to a decline in retail investor participation, as the tax eats into their potential gains, making the market less attractive.

With Budget 2026 around the corner, market analysts and industry bodies are urging the government to provide much-needed relief. They propose a rationalization of the STT and LTCG taxes to make the Indian equity market more competitive and attractive to investors. This move, they believe, will not only boost market sentiment but also encourage long-term investment, fostering a healthier and more robust economy. As the budget announcement draws near, the market eagerly awaits a decision that could significantly impact its future trajectory.

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