Budget 2026: Experts Call for Simplified Capital Gains Tax Rules for Middle-Class Investors

As investment participation expands across India, with more middle-class taxpayers venturing into diverse assets from financial instruments to real estate, the taxation of gains has become a pressing concern. Whether selling shares after a market rally, redeeming mutual fund units, or transferring property, long-term capital gains (LTCG) tax now affects a broader segment of the population than ever before.

Growing Relevance of LTCG for Everyday Investors

Previously considered a niche issue for seasoned investors or large asset holders, LTCG compliance is increasingly becoming a middle-class challenge. With rising retail involvement in markets and sustained activity in real estate, many taxpayers struggle to navigate the complexities of holding periods, applicable tax rates, and loss adjustment mechanisms.

Against this backdrop, and with the Union Budget approaching alongside the rollout of the new Income-tax Act, 2025 in April, tax experts see an opportunity for the government to further streamline the LTCG framework. The goal is to reduce interpretational disputes and make compliance less burdensome for ordinary citizens.

Current LTCG Framework and Recent Changes

Long-term capital gain refers to profit earned from selling a capital asset after holding it for a specified minimum period. Capital assets encompass financial investments like shares, equity mutual funds, and bonds, as well as physical assets such as land, houses, and buildings. If held beyond the prescribed period, gains are taxed under LTCG provisions at 12.5% for many assets, though this varies by asset type.

A key shift followed the Finance Bill 2024, which introduced a base rate of 12.5% for many long-term gains. For listed equity shares, equity-oriented mutual funds, and units of business trusts, LTCG is taxed at 12.5% without indexation, with only gains exceeding Rs 1.25 lakh in a financial year being taxable. However, land and buildings saw the removal of indexation benefits under the Finance (No. 2) Act, 2024, though grandfathering provisions protect taxpayers who acquired property before 23 July 2024.

Holding periods also changed: for sales on or after 23 July 2024, most assets become long-term if held for over 24 months, while listed shares and similar securities qualify after 12 months. Previously, older rules required 36 months for most assets, with exceptions for financial assets (12 months) and unlisted shares or immovable property (24 months).

Expert Recommendations for Budget 2026

In a survey by Times of India Online, tax experts highlighted priorities for the upcoming budget, emphasizing smoother implementation over structural overhauls. Key areas for simplification include:

Rationalizing Asset Classifications: Surabhi Marwah of EY India stressed the need for clear guidance and easy-to-apply rules during the transition to the new Income-tax Act, 2025. She advocated for enhanced clarity on valuation rules and pre-filled information to ease compliance.
Simplifying Loss Set-Off Rules: Sundeep Agarwal of Vialto Partners pointed out the complexity in asset classification and loss set-off provisions. He called for standardizing asset categories and simplifying rules where long-term gains can only be set off against long-term losses, which often leads to convoluted computations.
Expanding Rebate Scope: Agarwal also suggested broadening the section 87A rebate to cover all capital gains, not just those from specified assets, to provide relief to small taxpayers.
Reducing Multiple Rulesets: Radhika Viswanathan of Deloitte India highlighted divergent rules based on asset type and taxpayer profile, advocating for greater flexibility in loss set-off and a simplified reinvestment relief framework.

Limited Expectations for Major Changes

Some experts, like Parizad Sirwalla of KPMG India and Tanu Gupta of Mainstay Tax Advisors, believe that after recent reforms, no major changes are anticipated. However, they suggest targeted relief, such as increasing the exemption threshold for long-term gains from listed equity to Rs 1.5 lakh or Rs 1.75 lakh to aid retail investors.

Addressing NRI Concerns

Richa Sawhney of Grant Thornton Bharat raised compliance challenges for non-resident Indians (NRIs), noting that TDS provisions for property sales do not apply to NRIs, causing delays. She recommended similar provisions for NRIs to streamline processes.

The Common Thread: Simplification Over Rate Cuts

Across expert views, the consensus is clear: the focus should be on simplifying the rulebook rather than cutting rates. Fewer asset-based distinctions, simpler loss set-off rules, broader rebates, and smarter pre-filled returns could transform LTCG from a technical maze into a navigable path for everyday investors. Predictability and consistency in interpretation are deemed crucial to reducing disputes and making compliance routine for the growing number of taxpayers dealing with capital gains.