No LTCG from mutual funds? What experts say

The Securities and Exchange Board of India (SEBI) has suggested a proposal to exempt mutual fund investors from long term capital gains (LTCG) tax when transferring existing investments to new ones. This proposal was sent to the Indian government ahead of the 2027 budget. However, implementing this change could result in a reduction of Rs 40,000-50,000 crore in government tax revenue, according to SBI estimates.

Experts like Suresh Sadagopan of Ladder7 Financial Advisories and Aarti Raote of Deloitte India express concerns that eliminating LTCG tax could negatively impact government revenue, especially during an uncertain economic environment. On the other hand, financial services leaders such as Naitik Doshi of Nangia Global and Vishal Lohia of Dhruva Advisors believe that SEBI's proposal to exempt LTCG tax for mutual fund switches is a positive development that could encourage long-term investments and improve investor experience in the Indian markets.

Doshi suggests that the Finance Ministry must strike a balance between attracting more investors and maintaining government revenue. Raote recommends that policymakers consider a differentiated capital gains tax scheme based on holding periods, rewarding long-term investments with lower tax rates and complete exemptions for those held for more than three years.