From Financialexpress · Prasanta Sahu · · 2m
STT and bond tax relief under review
Government considers scrapping STT and bond tax relief to boost market sentiment.
In brief
Government considers scrapping STT and bond tax relief to boost market sentiment. India's government is reviewing capital market tax reforms including STT abolition and corporate bond interest tax concessions to improve investor sentiment and market competitiveness. Originally reported by Financialexpress.
Capital market tax review underway
The Centre is revisiting capital market taxation to boost investor sentiment by considering options including scrapping STT and tax concessions on corporate bond interest.
LTCG tax structure under consideration
The government is examining a tiered long-term capital gains tax structure with lower rates for longer holding periods and possible exemptions after three to five years.
LTCG tax currently at 12.5%
Equities with holdings over 12 months face a 12.5% tax on long-term capital gains without indexation benefits.
FPI tax relief options
The government is considering providing relief exclusively to foreign portfolio investors, extending it to all investors, or focusing on debt markets instead.
STT revenue growth
STT collections rose 51.6% year-on-year to `46,840 crore by October 14, 2026, with projections for `73,700 crore in FY27.
STT rates in effect
Effective April 1, 2026, STT rates were 0.1% on equity delivery, 0.025% on intra-day sales, 0.05% on futures, 0.15% on options premium and exercised options.
Tax exemptions for FPIs
Foreign investors previously received exemptions from 30% short-term capital gains tax, 12.5% LTCG tax, and 20% interest income tax in government securities.
Debt market focus
The government is exploring extending G-Sec tax exemptions for foreign investors to domestic investors in corporate bonds or offering concessional tax rates on bond interest.
LTCG tax relief concerns
Lower LTCG tax rates could encourage investors to focus on high-growth stocks, potentially reducing dividend income and increasing tax revenue impact.
STT elimination rationale
Former CBDT member Arbind Modi stated STT should have been eliminated when LTCG was reintroduced in 2018 as it was a revenue mobilisation measure.
EY GPS perspective
EY GPS strategy lead partner Ajit Pai urged tax interventions to make Indian bonds more attractive to retail investors and promote bond market development.
Next steps
The government plans to announce tax reforms in the upcoming FY27 Budget after a comprehensive market-sensitive review.
What matters most
India's government is reviewing capital market tax reforms including STT abolition and corporate bond interest tax concessions to improve investor sentiment and market competitiveness.
