India’s LTCG Tax vs Other Countries: Finance Minister Nirmala Sitharaman is ready to hear views on LTCG tax and STT ahead of Budget 2027. Investors want these taxes to be reviewed as foreign investors continue to take money out of Indian markets.
Different countries have different rules for taxing stock market profits. How long shares are held and what tax-free benefits are available also affect how much tax investors have to pay..
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India
India charges 12.5% LTCG tax on eligible profits above Rs 1.25 lakh in a financial year. This applies to listed shares and eligible equity mutual funds held for more than 12 months. Short-term gains on specified equity investments are taxed at 20%. Investors must also meet the required conditions to qualify for these rates.
US
In the US, shares held for more than a year qualify for long-term capital gains tax rates of 0%, 15% or 20%. The rate depends on taxable income and filing status. Some high-income investors also pay a 3.8% Net Investment Income Tax. Short-term gains are taxed as regular income at rates of up to 37%.
UK
The UK doesn’t require investors to hold shares for a specific period to qualify for capital gains tax rules. The rates are 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. Individuals can make up to £3,000 in capital gains tax-free each tax year. Eligible Individual Savings Accounts (ISAs) also offer tax-free investment gains.
Japan
Japan generally taxes gains from listed shares at 20.315%. However, eligible investments under its Nippon Individual Savings Account (NISA) scheme can qualify for tax-free treatment within the prescribed limits. There’s no separate long-term holding period for ordinary listed shares.
Germany
Germany charges a 25% tax on investment income, plus a solidarity surcharge that takes the effective rate to around 26.375%, excluding church tax. Individuals also get a €1,000 annual saver’s allowance. Holding shares longer doesn’t provide a separate tax exemption.
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China and Hong Kong
China generally exempts individuals from capital gains tax on listed A-shares under the applicable policy, although stamp duty applies to share sales. Hong Kong doesn’t charge capital gains tax on listed shares, but trading profits may be taxed as income. Stamp duty also applies to share transactions.
Experts believe India should review LTCG tax and STT while keeping market stability and government revenue in mind.
“Any rationalisation should be evidence-based and aligned with the broader objectives of investor protection, market stability and revenue sustainability. The focus should be on reducing unnecessary friction without encouraging speculative excesses. Ultimately, a predictable tax regime, supported by strong market institutions and sound economic fundamentals, is likely to provide a more durable foundation for attracting domestic savings and long-term foreign capital than tax reductions in isolation,” said Mohit Gupta, Partner, PNAM & Co. LLP.
