SBI Research has said the government has enough fiscal headroom to withstand a revenue loss of about Rs 40,000-50,000 crore in FY28 if it moves to abolish the long-term capital gains tax, framing the issue as a manageable policy trade-off rather than a fiscal shock. The assessment comes at a time when policymakers are weighing ways to deepen India's capital markets, attract more foreign investment and strengthen household participation in equities without undermining the tax base.
The report's core argument is that the revenue sacrifice from removing LTCG tax would be modest in the context of the broader Union budget and could be offset, at least in part, by complementary measures. SBI Research has suggested a more nuanced reform architecture: raising exemption limits and introducing lower tax rates for investors who hold assets for longer periods. In its view, such a structure would preserve the principle of rewarding patient capital while reducing the friction that currently discourages long-term equity ownership.
Fiscal Room Exists
The estimate of a Rs 40,000-50,000 crore revenue impact for FY28 is significant in absolute terms, but SBI Research appears to be arguing that it is not large enough to derail fiscal planning if the government chooses to prioritise market development. The broader implication is that India's tax policy can be used as a strategic lever to deepen capital formation, especially at a time when domestic markets are increasingly central to financing growth, mobility expansion and the transition to electric vehicles.
For the automotive, EV and mobility ecosystem, the stakes are indirect but meaningful. A more confident equity market can improve access to capital for listed automakers, battery makers, charging infrastructure firms and mobility startups. It can also support valuations and fundraising conditions across the supply chain, particularly for companies that depend on long-duration investment cycles and patient capital.
The report's emphasis on longer holding periods is especially relevant for sectors such as EVs, where business models often require extended gestation periods before profitability stabilises. If investors are rewarded for staying invested longer, the policy could encourage more stable capital allocation into technology-intensive and infrastructure-heavy businesses.
Market Confidence Effect
SBI Research also points to a possible increase in Securities Transaction Tax as a partial counterweight to the revenue loss from abolishing LTCG tax. That suggestion reflects a broader policy logic: if the government removes one layer of taxation that is often viewed as a drag on market participation, it may be able to recover some revenue through transaction-based collections while still improving the overall attractiveness of Indian equities.
The report implies that such a shift could have a psychological effect beyond the arithmetic. A cleaner and more investor-friendly tax regime may help reduce uncertainty, support trading volumes and reinforce India's image as a stable destination for foreign portfolio capital. For global investors, predictability often matters as much as headline tax rates, particularly in emerging markets where policy signals can influence allocation decisions quickly.
At the same time, any move to abolish LTCG tax would require careful calibration. Policymakers would need to balance the desire to stimulate market participation with the need to avoid excessive short-term speculation and to preserve fairness across asset classes. That is why the report's recommendation of differentiated rates based on holding duration is notable: it seeks to preserve the long-term investment incentive while limiting the risk of a blanket tax cut that could disproportionately benefit high-frequency market activity.
Policy Trade-Off Ahead
The debate over LTCG taxation is likely to intensify as the government considers ways to broaden the investor base and support capital market depth without compromising fiscal discipline. SBI Research's conclusion suggests that the revenue cost is not prohibitive and that the policy gains could be substantial if the reform is designed carefully.
For New Delhi, the question is no longer simply whether it can afford to lose the revenue. It is whether a redesigned capital gains regime could generate enough market confidence, foreign inflows and long-term investment behaviour to justify the shift. In that sense, the report positions LTCG abolition not as a tax giveaway, but as a structural reform with implications for market development, capital formation and the financing of India's next phase of industrial growth.