New Delhi, Oct 27: The government is considering a cut in the long-term capital gains (LTCG) tax on shares from the current 12.5 per cent as it looks to improve investor confidence and attract more money into the stock market ahead of the Union Budget 2027-28.

The government is also looking at allowing foreign investors to calculate their gains in US dollar terms instead of rupees while paying taxes. The move could make Indian markets more attractive to overseas investors.

The discussions come at a time when stock market returns have remained weak over the past two years, while foreign investors have continued to pull money out of Indian equities. Slow wage growth and the growing number of retail investors have also added to concerns over market sentiment.

Domestic mutual funds have helped support the market by investing money collected from Indian investors. However, concerns remain over whether these inflows will be enough to offset continued selling by foreign investors.

As per sources, the government is consulting stakeholders before taking a final decision. "The government is examining the LTCG rate with what is applicable in major economies," sources said, adding that discussions with stakeholders are underway. The possible tax cut would be another change in India's equity tax rules in recent years.

In 2018, the government brought back LTCG tax on listed shares at 10 per cent on annual gains above Rs 1 lakh. Before that, long-term gains from listed equities were exempt from tax. In 2020, the government ended the Dividend Distribution Tax system. Since then, dividend income has been taxed in the hands of investors at the rates applicable to their income.

The government made further changes in the Union Budget 2024-25. It raised the short-term capital gains tax on specified equity investments from 15 per cent to 20 per cent. The LTCG tax rate was also increased from 10 per cent to 12.5 per cent, while the annual tax-free limit was raised from Rs 1 lakh to Rs 1.25 lakh.

At present, investors pay 12.5 per cent tax on eligible long-term gains from listed shares exceeding Rs 1.25 lakh in a financial year, subject to applicable conditions. The tax is calculated without adjusting the purchase price for inflation.

Earlier, on October 13, Finance Minister Nirmala Sitharaman had said the government was open to hearing stakeholders' views on removing the LTCG tax. The latest discussions suggest that the government is reviewing whether changes to equity taxes could help improve investor confidence. However, no final decision has been announced, and the proposals are still under consideration. (With ANI inputs)