Sensex jumps 1,109 pts as Sitharaman’s LTCG, STT remarks spark Budget hopes

Stock market investors received a fresh reason for optimism on Tuesday (October 13) after Union Finance Minister Nirmala Sitharaman acknowledged the ongoing debate over long-term capital gains (LTCG) tax and securities transaction tax (STT). This has raised hopes of a possible review in the upcoming Union Budget.

Speaking at the Bloomberg New Economy Forum in New Delhi, Sitharaman said several stakeholders, both in India and overseas, had been commenting on LTCG taxation. However, she stopped short of promising any changes, saying Budget preparations had already begun and it was not the right time to indicate what the government might consider.

The comments come amid concerns among investors about the cost of investing in Indian equities, particularly after the government increased STT on equity derivatives in the 2026 Budget.

What the FM said

Sitharaman said the relationship between LTCG tax and STT had been debated for years, with some arguing that investors should not face both taxes. She also referred to discussions around bringing different asset classes on a comparable footing, explaining that the intention was to prevent investors from choosing investments simply because one offered a greater tax advantage.

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The Finance Minister said she was keen to hear stakeholders’ views on these issues.

Investors are hoping the government could consider reducing or rationalising one or both taxes. However, her remarks indicate that the issue is being debated, not that a tax cut has been decided.

"The rationale for reintroducing LTCG on listed equities in 2018 was driven by concerns around tax neutrality, parity across asset classes and revenue mobilisation. The debate today is different. It is centred on whether India's capital market framework is sufficiently competitive to attract and retain long-term domestic and foreign capital," said Richa Sawhney, Partner - Tax, Grant Thornton Bharat.

"The Budget consultations offer a timely opportunity to evaluate whether the existing regime remains aligned with India's evolving economic and investment priorities," Sawhney added.

Sensex rallies over 1%

Indian equity benchmarks staged a sharp recovery today, with the Sensex jumping 1,109 points to close at 73,034. The Nifty gained 359 points to settle at 22,722, rising above the 22,700 mark.

Information technology stocks led the late-session rally, with HCL Technologies and Tata Consultancy Services among the key gainers. The Nifty IT index recorded its biggest single-day gain since May 2025, while the midcap index recovered nearly 900 points from its intraday low.

Expectations of a possible tax review may have supported sentiment, although the rally was also driven by strong buying in IT stocks.

How much tax do investors pay?

Currently, eligible listed equity investments held for more than 12 months attract LTCG tax of 12.5% on annual gains exceeding Rs 1.25 lakh. STT is charged separately on specified market transactions.

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In the 2026 Budget, the government increased STT on equity futures to 0.05% from 0.02%. The rate on options premiums rose to 0.15% from 0.1%, while STT on exercised options increased to 0.15% from 0.125%. The higher rates were aimed at curbing excessive speculation in the derivatives market.

Naitik Doshi, director at Nangia Global, said rationalising LTCG or STT could improve post-tax returns, encourage domestic investment and make India more attractive to foreign investors. He added that investors also needed a predictable, stable tax regime.

Rupee under pressure

On the rupee’s depreciation, Sitharaman said the Reserve Bank of India was taking significant measures concerning the currency. She added that several factors were contributing to the depreciation, most of which were external.

The Finance Minister reiterated that India’s macroeconomic fundamentals remained sound. The government believes the rupee’s weakness is being influenced substantially by factors beyond India’s control. Her comments signal confidence in the economy’s underlying strength, rather than suggesting that currency pressures have disappeared.

Sitharaman also emphasised the importance of fiscal discipline, saying the subject is close to Prime Minister Narendra Modi’s heart. She noted that Modi had followed fiscal prudence even when he was chief minister of Gujarat.

The messaging

The FM added that fiscal discipline should not be a cause for concern for investors.

The government appears to be signalling that it intends to maintain responsible public finances. For investors, fiscal discipline can support economic stability and confidence, although its impact also depends on growth, government spending and revenue trends.

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For now, the Finance Minister’s remarks offer a possible positive signal for equity investors ahead of the Budget. But until the government announces specific measures, any expectation of lower LTCG or STT should be treated as a possibility, not a certainty.

Holistic review of tax burden

“At a time when India is witnessing significant FPI outflows and sustained pressure on the rupee, the competitiveness of our capital markets deserves renewed attention. While global factors, relative valuations and corporate earnings remain key drivers of foreign investor flows, the cumulative burden of capital gains tax and STT also influences the attractiveness of Indian equities. India should undertake a holistic review of the tax burden on foreign portfolio investors, including the role of STT, to improve net returns and reduce friction costs," said Tejas Desai, Partner and Leader, Financial Services Tax, India.

"Equally important is ensuring tax certainty for foreign investors in the aftermath of the Tiger Global judgement, with clear and consistent application of treaty benefits in keeping with India's international treaty commitments, particularly for grandfathered investments. A more competitive and predictable tax regime could help strengthen investor confidence, deepen market liquidity and reinforce India’s position as a preferred destination for global capital," Desai added.