Retail investors could finally see tax relief in Union Budget 2026, as the government is reportedly considering changes to the short-term capital gains (STCG) tax on listed equities and equity mutual funds.
Currently, STCG applies when shares or equity mutual fund units are sold within one year of purchase. These gains are taxed at a flat 20 percent, which rises to nearly 23.92 percent after surcharge and cess. This marks a sharp jump from the earlier 15 percent rate that was in place before the 2024 tax changes.
Higher Taxes, Lower Returns
The higher STCG rate has significantly reduced post-tax returns, especially for short-term traders. When combined with Securities Transaction Tax (STT) and market volatility, investors say the overall cost of equity trading has become much heavier.
With millions of retail participants now active in Indian stock markets, experts believe the current structure is discouraging participation and dampening market liquidity.
What the Government May Consider
Market discussions suggest three possible measures that could be announced in Budget 2026:
Reduce STCG tax back to 15 percent, restoring the earlier rate
Introduce a Rs 1.25 lakh annual STCG exemption, similar to the existing LTCG exemption
Rationalise STT by cutting equity STT to 0.05 percent, lowering transaction costs
Expert View
Vishal Lohia, Partner at Dhruva Advisors, says:
“Short term capital gains (STCG) tax on listed equities and equity mutual funds applies to sales within one year, taxed at a flat 20 percent plus surcharge and cess. This current STCG tax of 20 percent (effective up to 23.92 percent with cess), up from 15 percent post-2024 changes, has eroded returns amid STT costs and volatile markets.
A proposal may be considered by the Government to reduce short term capital gains tax rate to 15 percent or/ and introduce Rs 1.25 lakh annual short-term capital gains exemption under the new tax regime – similar to those provided in case of long-term capital gains. Alternatively, the Government may consider STT rationalization by halving the equity STT to 0.05 percent.”
Why This Matters
Higher trading taxes have made short-term investing less attractive. Industry bodies argue that easing the burden could:
Improve retail investor sentiment
Boost market participation
Increase trading volumes
Support market liquidity
What to Watch
While no official announcement has been made yet, experts say Budget 2026 could become a turning point for equity taxation. Any move to lower STCG or STT would be closely watched by markets and could offer meaningful relief to millions of investors.
