Is Vijay Kedia right about ending LTCG tax on equity investors?

Ace investor Vijay Kedia’s call to abolish long-term capital gains (LTCG) tax on listed equities has reignited debate around whether India’s tax framework discourages long-term investing at a time when the country needs massive pools of domestic capital for growth.

In a series of posts addressed to Finance Minister Nirmala Sitharaman on social media platform X, Kedia argued that long-term shareholders should not be treated as speculators but as providers of “patient risk capital” that helps businesses expand, innovate, and create jobs.

“A long-term shareholder is not a speculator but a provider of patient risk capital,” Kedia wrote.

“By investing in and holding businesses, investors help companies expand, create jobs, innovate and contribute to India’s economic growth,” he added.

Why Kedia wants LTCG tax abolished

India currently imposes a 12.5% long-term capital gains tax on listed equities above the exemption threshold. Kedia believes this tax discourages long-term investing and reduces the attractiveness of equities compared with other assets.

According to him, India needs policies that encourage households to move savings from passive assets such as gold into productive businesses that generate employment and national wealth.

“India needs more patient capital, more entrepreneurship and more long-term investing. Abolishing long-term capital gains tax on listed equities would be a powerful step in that direction,” Kedia said.

He also argued that the government already earns substantial tax revenues throughout a company’s growth cycle through corporate taxes, GST, customs duties, employee income taxes, and stamp duties.

“The appreciation in a company’s value is not created in isolation,” Kedia wrote.

“Long-term capital gains are often the final outcome of economic activity that has already generated substantial tax revenues,” he added.

Supporters of Kedia’s proposal argue that lower taxes on long-term equity investing could deepen India’s capital markets, increase retail participation, and reduce dependence on foreign capital flows.

India has already witnessed a sharp rise in retail investing over the past few years, with record SIP inflows and millions of new demat accounts being opened. Market experts say stable domestic capital has helped Indian markets remain resilient during periods of global volatility.

The case against removing LTCG tax

However, critics argue that completely abolishing LTCG tax could create equity concerns within the broader tax system and reduce an important source of government revenue.

Some tax experts believe preferential treatment for equity investors may disproportionately benefit wealthier households with large financial portfolios. Others argue that India already taxes long-term equity gains at lower rates than many other forms of income.

There are also concerns that eliminating LTCG tax entirely could encourage tax arbitrage, where investors shift income into capital gains structures to reduce tax liability.

While Kedia insists tax policy should clearly distinguish between investment and speculation, policymakers may still have to balance investor incentives with fiscal discipline.

Dividend taxation issue

Kedia’s second proposal focused on dividend taxation. He argued that dividends from listed equities should not face double taxation because companies already pay corporate tax before distributing profits to shareholders.

“When a company raises equity capital, dividends are paid out of profits that have already suffered corporate tax,” Kedia noted.

“A shareholder has no guarantee. Dividends are discretionary, capital is fully at risk, and the shareholder stands last in line if a business fails,” he added.

According to Kedia, debt investors currently receive more favourable treatment because interest payments are deductible business expenses, while equity investors bear higher risk without similar tax advantages.

The debate around Kedia’s proposals reflects a larger policy question facing India: should long-term equity investing receive stronger tax incentives to support economic growth, entrepreneurship, and capital market development?

As India seeks to become a larger global economic and manufacturing powerhouse, the discussion around rewarding long-term risk capital is likely to remain at the centre of financial policy conversations.