As we approach the Union Budget 2026-27, the millions of investors who have flocked to the Indian markets over the last few years are holding their breath. At Motilal Oswal, we see the capital gains framework as the rules of the game for wealth creation. After the sweeping changes in 2024 and 2025, the big question for 2026 is: Are we in for another round of changes, or is it time for stability?

In late 2025, Indian equities have shown remarkable resilience, with the Nifty 50 consistently finding support at higher valuation levels. However, for the Financialization of Savings to continue, the tax regime must remain predictable. Here is our perspective on the Long-Term Capital Gains (LTCG) expectations for 2026.

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The Current State of Play (FY 2025-26)

Before we look at the future, let’s recap the current rules. The government has already moved toward a Uniform LTCG Rate of 12.5% for most assets, removing the complexity of indexation for new purchases.

Key Expectations for 2026: Stability vs. Reform

A. The Status Quo on Rates

At Motilal Oswal, our baseline expectation is that the 12.5% LTCG rate will remain unchanged. The government has recently completed a major rationalization, and frequent changes can lead to policy fatigue, which spook foreign and domestic institutional investors alike. Stability is the S in the longevity of our QGLP framework.

B. Raising the Exemption Limit to ₹2 Lakh

While the rate may stay the same, there is a loud demand to increase the annual exemption limit for equity LTCG.

• The Current Limit: ₹1.25 Lakh.
• The 2026 Wishlist: Increase to ₹2 Lakh.
• The Rationale: As the market grows and more middle-class Indians invest, a ₹1.25 lakh limit is easily breached by even moderate portfolios. Raising this would reward long-term retail SIT TIGHT investors.

C. Rationalizing the Holding Period

Currently, there is a mismatch: 12 months for listed equity but 24 months for real estate and unlisted shares.

• The Expectation: A push for a Unified 12-month Holding Period for all financial assets.
• The Impact: This would simplify portfolio rebalancing for investors who hold a mix of assets, making the Asset Allocation process much smoother.

The Indexation Debate: A Selective Return?

The removal of indexation in previous years was a bitter pill for real estate investors. In 2025, the government allowed a choice for properties bought before July 2024.

• Expectation for 2026: Taxpayers are hoping for the reintroduction of indexation for specific non-financial assets like Gold and Real Estate, or a further reduction in the flat rate to 10% for these categories to account for their lower liquidity and higher inflation sensitivity.

Debt Mutual Funds: The Level Playing Field

One of the biggest pain points of 2025 was that Debt Mutual Funds (with less than 35% equity) are taxed at slab rates regardless of the holding period.

• The Wishlist: Reintroduce an LTCG category for Debt Funds (holding > 24 or 36 months) at a flat 12.5% rate.
• Why it matters: This would prevent tax-arbitrage where investors favor FDs over Debt Funds solely due to similar tax treatments, allowing for better-diversified portfolios.

Potential New Rules for 2026

Looking at latest trends, we might see new rules targeting specific segments:

1. ULIP Parity: Budget 2025 already signaled that ULIPs with high premiums (>₹2.5 lakh) would be taxed like equity MFs. Expect more fine-tuning here to ensure Tax Parity across all investment-cum-insurance products.
2. Loss Set-off Simplification: Currently, setting off long-term losses against short-term gains is restricted. Investors are looking for a Universal Set-off rule to simplify tax filing.

Summary Table: What to Watch in Budget 2026

Final Thoughts: The Wealth Creator’s Strategy

At Motilal Oswal, we believe that Tax is a cost, but quality is a value. Even if the LTCG rules see minor tweaks, the core of your strategy should not change.

• Focus on Quality: A company with a strong moat and 20% earnings growth will always beat the tax drag.
• Don't Over-Trade: Short-term gains are still taxed at 20%. By shifting your perspective to long-term (LTCG), you automatically save 7.5% in tax (the difference between 20% and 12.5%).

The 2026 Budget will likely be about consolidation. Use this period to review your Buy Right : Sit Tight holdings and ensure you are maximizing your current exemptions.

Explore Budget 2026 Insights - Income Tax Slab Changes | Taxpayer Expectations | Salaried Class Expectations | Standard Deduction & Rebates | Capital Gains Tax | Mutual Fund Taxation | 80C & 80D Expectations