Budget 2025: LTCG, STT rate changes coming? Here's what analysts say

The upcoming Union Budget is likely to contain proposals for the capital market. A key demand, which investors have been making is the tax sops in trading and investing. But considering the huge volumes of trading being carried out on the bourses, it would be a tough task for the Modi government to tinker with LTCG, STCG and STT. We spoke to analysts on the same and here's what they said. 

Amnish Aggarwal, Director - Institutional Research, PL Capital - Prabhudas Lilladher

Corporate tax collections remain flat, while income tax has grown 23.5% in 8mFY25, driven by a 2.5-3x increase in LTCG and STCG collections. Capital gains now account for 31% of total income tax collections (up from 17% in 2018). However, volatility in capital markets could impact overall collections in 2H25.

Ravi Singh, Senior Vice-President (Retail Research) at Religare Broking

As the 2025 Budget approaches, I believe there is growing speculation about potential changes to the Securities Transaction Tax (STT) and Long-Term Capital Gains (LTCG) tax. I think the government may consider raising the LTCG exemption limit, currently at ?1.25 lakh, which could benefit investors by allowing them to retain more of their gains. Additionally, there are discussions about possibly abolishing STT to encourage trading activity. However, I feel that maintaining the current tax structures could provide much-needed stability for investors. Ultimately, how these tax policies evolve will significantly influence investor sentiment and market dynamics in the coming year.

Ajay Garg, CEO, SMC Global Securities

No major changes to STT or LTCG would indeed be the best possible outcome for investors, as it would provide stability, encourage long-term investing, and maintain investor confidence. While the government might need to consider these taxes for fiscal consolidation, increasing these rates could have adverse effects on the market and retail investors. The best approach for sustaining a positive market environment would be to keep these tax rates largely unchanged, at least for the short to medium term.

Manish Chowdhury, Head of Research, StoxBox

Considering that the government raised STT and LTCG in the last budget, we do not foresee changes to the same in the upcoming budget. Also, the collection from STT in FY25 has far exceeded government estimates and it would be prudent for the government to have a status quo. This stance would signal policy continuity to investors, especially FIIs who are seemingly worried about frequent changes to the tax regime.  

Trivesh D, COO Tradejini

We think the chances of changes to STT or LTCG are relatively low. However, there could be some focus on capital gains taxation for bonds and mutual funds. Keeping things stable could be seen as a positive for investors, as it provides clarity and consistency.

Puneet Singhania, Director at Master Trust Group

In the 2024 budget, the Securities Transaction Tax (STT) was increased from 0.01% to 0.02% for equity and index trades, while long-term capital gains (LTCG) over Rs 1.25 lakh are now subject to a tax rate of 12.5%. Significant adjustments to the capital gains tax for investors are not anticipated. Since the government has been promoting investment, major adjustments to the capital gains tax may deter it. From a broader perspective, maintaining policy stability is crucial during economic slowdown and weakened corporate earnings. Therefore, avoiding further changes to STT or LTCG might be the best approach as frequent adjustments create uncertainty for investors.

Siddharth Oberoi, Founder and Chief Investment Officer at Prudent Equity

While it's something investors can hope for, the government's stance last year was quite clear, indicating that tax rates may rise in the future. However, given the market volatility over the past six months, it seems unlikely that the government will take that approach this year-perhaps not until the next one.

Manish Bhandari, CEO and Portfolio Manager at Vallum Capital Advisors

Yes, the government should reduce STT or LTCG capital gains by a minimuim 5% to revive the spirit of the capital markets.  

Anand K Rathi, co-founder of MIRA Money

Historically, when LTCG or STCG taxes have been raised, the stock market has experienced a significant downturn in the subsequent year. Given this pattern, we advocate for a potential shift in LTCG rules. For instance, a 0% tax rate increase for investments held over three years could foster a culture of long-term investing, potentially leading to a more stable market in the long term.

On the other hand, we don't expect many changes to the STCG rules. The government's consistent stance on discouraging short-term trading is evident. Even if STCG taxes fluctuate, the focus seems to be on long-term investments, providing a stable environment for investors.

Investors have adapted to the new tax system. So a lack of government action could result in a subdued market response. However, lowering LTCG taxes or extending the investment holding period could inject enthusiasm into the market. A positive change in LTCG policies could invigorate the market, making it more dynamic and engaging.