SBI Research has argued that India's fiscal position is strong enough to absorb a revenue loss of about Rs 40,000-50,000 crore in FY28 if the government chooses to abolish long-term capital gains tax, a move that would mark one of the most significant shifts in the country's equity taxation framework in years. The assessment comes at a time when policymakers are weighing how to balance tax simplification, investor sentiment and revenue stability amid a broader push to deepen capital markets and sustain growth.
The research note suggests that the fiscal cost of removing LTCG tax would be modest relative to the size of the Union budget and could be offset through a combination of higher market participation, improved compliance and a recalibrated transaction tax structure. In SBI Research's view, the government has sufficient fiscal space to consider such a reform without jeopardising its broader consolidation path, particularly if the change is implemented alongside measures that preserve revenue neutrality over time.
Fiscal Space Intact
The central argument is that the estimated revenue loss is manageable in the context of India's expanding economy and improving tax base. SBI Research said the government could absorb the hit if it chooses to use the reform as a tool to encourage long-term investment, reduce tax complexity and strengthen India's appeal to domestic and foreign portfolio investors. The note implies that the policy trade-off may be worthwhile if it helps unlock deeper participation in equity markets and supports a more stable investment environment.
The proposal is not simply about removing a tax. SBI Research has also pointed to a more nuanced redesign in which exemption thresholds are raised and lower tax rates are introduced for longer holding periods. Such a structure would reward patient capital, reduce churn in markets and align tax policy more closely with the objective of encouraging long-term wealth creation. In effect, the research suggests that India could move from a blunt capital gains framework to one that more explicitly differentiates between speculative and strategic investment.
Market Confidence Boost
A key part of the argument is the potential signalling effect. Abolishing LTCG tax, or substantially easing it, could be interpreted by investors as a pro-market reform that improves predictability and lowers friction in equity investing. SBI Research said that such a move may also help attract foreign capital at a time when global investors are closely watching India's policy stance, growth trajectory and market depth.
The note also highlights the role of Securities Transaction Tax, which could be increased to offset part of the revenue loss. That approach would shift the burden away from gains-based taxation and toward transaction-based collection, while still preserving a revenue stream for the exchequer. For policymakers, this offers a possible compromise: simplify the tax regime for long-term investors while retaining a mechanism to recover some of the foregone receipts.
For the automotive, EV and mobility ecosystem, the implications are indirect but important. A stronger equity market and improved investor confidence can support funding conditions for listed automakers, EV manufacturers, battery suppliers and mobility-tech firms that rely on capital markets for expansion. Lower tax friction on long-horizon investments may also encourage greater household participation in financial assets, potentially broadening the pool of domestic capital available for sectors that require sustained funding.
Policy Trade-Offs Ahead
Still, any move to abolish LTCG tax would involve a careful political and fiscal calculation. Capital gains taxation has been a sensitive issue because it affects both retail investors and high-net-worth participants, while also serving as a visible source of revenue. A reform of this scale would need to be designed to avoid excessive volatility, prevent tax arbitrage and ensure that the benefits are not concentrated only among large investors.
SBI Research's assessment suggests that the government does not face an immediate fiscal constraint that would rule out such a reform. Instead, the question is whether the policy dividend in terms of market depth, investor sentiment and long-term capital formation is worth the revenue sacrifice. If the government chooses to proceed, the likely path would be incremental rather than abrupt, with higher exemption limits, differentiated holding-period slabs and a revised STT structure forming the core of the package.
For now, the research note has added momentum to a debate that sits at the intersection of taxation, market development and growth strategy. The broader message is that India may have enough fiscal room to experiment with a more investor-friendly capital gains regime, provided the reform is calibrated carefully and paired with compensating measures that keep the revenue impact within manageable bounds.