Abolish LTCG to Boost Long-Term Equity Investing: Emkay’s Sheth

Emkay Global’s, Institutional Equities CEO, Nirav Sheth has called for abolishing long-term capital gains (LTCG) tax ahead of the Union Budget on February 1, arguing that India’s equity markets need tax stability and simplicity to support long-term capital formation.

In his latest CEO’s Desk note, Sheth said the reintroduction of LTCG tax on equities in 2018 marked a shift away from a policy framework that had encouraged patient risk capital and helped deepen India’s equity culture. He argued that taxing long-term equity gains runs counter to the government’s stated objective of moving household savings away from physical assets and into financial markets.

Sheth noted that while LTCG was introduced as a revenue measure, collections have been modest relative to the broader economic gains from deeper and more stable equity markets. More importantly, he said, the tax has added complexity for investors and increased compliance friction, particularly for retail participants who have become a key pillar of domestic market flows through mutual funds and systematic investment plans.

According to Sheth, the issue is not merely about tax rates but about predictability. Capital markets, he said, thrive on policy certainty, and frequent changes to capital gains taxation risk undermining investor confidence. This is especially relevant at a time when global investors are increasingly selective, and domestic flows are playing a larger role in cushioning markets against external volatility.

The Emkay executive also underscored the role of equity markets in financing India’s growth ambitions. With public capital expenditure elevated and private investment gradually reviving, Sheth said equity markets remain a critical channel for risk-sharing and balance-sheet expansion. Policy should incentivise long-term ownership rather than encourage shorter holding periods driven by tax considerations, he added.

Beyond LTCG, Sheth urged restraint in the upcoming Budget, cautioning against surprise measures that could unsettle markets. Investors, he said, would be watching closely for signals on fiscal consolidation, the quality of government spending and clarity on the medium-term tax roadmap. A credible fiscal glide path, in his view, would help anchor bond yields and provide a supportive backdrop for equities.

As the Union Budget approaches, Sheth’s remarks bring the LTCG debate back into focus. The trade-off, once again, is between near-term revenue and the longer-term objective of building deep, resilient capital markets capable of funding India’s growth cycle.