The Government Earned ₹1.29 Trillion Taxing Equities. Why Will It Let It Go?

Consuming opium is an addiction.

And those in the business of managing other people’s money, that is OPM, are addicted to the idea of the government charging no tax on long-term capital gains made on sale of stocks and equity mutual funds. (Actually, these days they are also talking about a lower tax.) 

Possibly, not a day goes by when one of them gets up from the left side of the bed and tells first their spouses or partners and then the world at large – that there should be no long-term capital gains tax on sale of stocks and equity MFs.

Reasons are offered for this. First, that zero tax on long-term capital gains will attract foreign institutional investors back to the stock market. Second, the government hardly earns any tax from long-term capital gains on stocks and equity MFs.

The trouble is that the government earns a lot of tax from long-term capital gains on stocks and equity MFs, and that figure has been increasing year on year.

Take a look at the following chart.

 

In response to a question raised in Parliament, the Ministry of Finance said on July 20, 2026, that in 2024-25 and 2023-24, the revenue generated from long term capital gains tax on stocks and equity MFs, stood at ₹1.29 trillion and ₹722.5 billion, respectively.

Data released in July 2024 showed that the revenue generated in 2018-19 and 2019-20 had stood at ₹292.2 billion and ₹260.1 billion, respectively.

If one were to put this in a language that the OPM wallahs understand, in 2024-25, the revenue from long-term capital gains on stocks and equity MFs was 4.4X of what it was in 2018-19 – a very impressive CAGR of 28% on average.

Revenue Reality
Now, take a look at the following chart, which plots the long-term capital gains tax on stocks and equity MFs as a proportion of the personal income tax earned by the government.

As can be seen from the above chart, the role that long-term capital gains on stocks and equity MFs plays in funding the Union Budget has increased over the years.

These taxes stood at 6.2% of the total personal income tax earned by the government in 2018-19 and 5.3% in 2019-20. They jumped to 12.4% in 2021-22 and 11.8% in 2022-23, helping the government raise revenue during a difficult economic period.

In 2024-25, they stood at 10.5% of the total personal income tax collected by the government. The ₹1.29 trillion earned through this tax earned during the year is a substantial figure indeed.

This tax has also helped offset the slowdown in the growth of corporate income tax collections following the corporate tax rate cut in September 2019. 

This raises multiple points.

First, many OPM wallahs have claimed over the years that the government barely makes any money from these taxes. The data shows us that this is not true.

Second, the Ministry of Finance on July 20, 2026, clearly said in reply to a question raised in Parliament that, at present, there is no proposal under consideration to do away with this tax.

Now, let’s assume for a minute that the government listens to the OPM wallahs and decides to do away with this tax. The question then is, where is the money that this tax brings in, going to come from?

Not surprisingly, no OPM wallah has bothered explaining that – or do they want us to believe that they expect the government to cut its expenditure by ₹1.29 trillion, the money that it earned through this tax in 2024-25?

One way to tackle this would be to increase the corporate income tax rate – but that would mean the government admitting that cutting the tax in 2019 in order to encourage corporates to invest in the Indian economy was a mistake. 

Also, this would push down corporate earnings.

Further, it is worth remembering that in 2026-27, given the war in West Asia, the government isn’t going earn as much revenue from taxes on petroleum products, as it has in the past.

The broader point here is that if the government loses ₹1.29 trillion from this tax, the missing revenue has to come from somewhere. That burden has to be borne by someone else. Some other taxes will have to be increased.

In essence, the OPM wallahs trained and incentivised to project first order thinking, are playing the burden shifting game here and are asking the average Indian consumer and non-stock-investing taxpayer to subsidise the tax-free market gains of equity investors.

If the government decides not to raise other taxes, then it has to borrow more money to fund the higher fiscal deficit. This can push up interest rates and again pass on the cost to others. 

Third, earning income through a monthly salary attracts marginal income tax rates of up to 30% (plus cess and surcharge). Expecting stock market capital gains to be taxed at 0% creates a glaring moral hazard and tax inequity.

Also, if paper wealth generated in secondary stock markets enjoys zero tax while active labour and real entrepreneurship carry the heavy lifting of direct taxation, capital is incentivized to chase asset-price speculation rather than real-economy risk-taking, something that has clearly been playing out in India over the last few years. 

This can also be seen in the quality of venture capitalist funded IPOs that have hit the Indian stock market over the last few years. 

Fourth, it is worth remembering that FIIs poured billions of dollars into Indian stocks even after the long-term capital gains tax on stocks and equity MFs was reintroduced in 2018.

Attributing global institutional fund flows strictly to just a domestic 10–12.5% capital gains tax oversimplifies how global capital allocation works. Of course, it makes a difference, but it’s not the only reason, and clearly not the most important one.

Fifth, why would the government let go of a tax growing at a CAGR of 28% per year? I would love to hear an explanation for that.

Finally, if the OPM lobby wants equity taxed like it's 2017, it can start by explaining why the salaried taxpayer or a freelancer like me doesn't deserve the same nostalgia.

Every rupee not collected from equity investors has to be collected from someone else – through higher taxes, lower public spending or more government borrowing.

Those demanding zero tax on stock market gains rarely acknowledge this trade-off because doing so weakens their case.

The OPM wallahs are free to argue for abolishing the tax or lowering it.

But then they should also tell us whose taxes they want raised instead. Until then, they aren't arguing for lower taxes, they are simply arguing that someone else should pay for them.

Indeed, the trouble with an OPM addiction – like a continuing opium addiction – is that it blurs your thinking and makes you keep repeating the same thing while expecting a different reaction from your audience.