Capital Markets Look to Union Budget for Tax Stability and Policy Continuity

India’s capital markets have expanded rapidly in both scale and participation, emerging as a key channel for household savings and corporate fund-raising. As the Union Budget approaches on February 1, investors and market participants are closely tracking signals related to taxation, regulatory continuity, and long-term market development.

In the previous Union Budget (FY2025–26), the government largely refrained from introducing major changes to capital market taxation, reinforcing a preference for predictability. This stability has coincided with a surge in retail participation, with demat accounts crossing 15 crore and sustained inflows into equity mutual funds.

Systematic Investment Plan (SIP) contributions continue to remain strong at over ₹17,000 crore per month, reflecting growing confidence in long-term investing despite market volatility.

Key Expectation: Investors expect the upcoming budget to maintain stability in capital gains taxation, including the existing framework of 15% short-term capital gains (STCG) on equities and 10% long-term capital gains (LTCG) beyond the exemption limit. Abrupt tax changes are widely viewed as unlikely, given the role capital markets play in supporting economic growth and capital formation.

Market Context: Capital markets are increasingly vital for financing infrastructure, manufacturing expansion, and private sector investment. Consistent policies have helped channel domestic savings into equities and debt, reducing dependence on volatile foreign capital flows.

Budget Outlook: While major tax rate revisions may be avoided, the budget could focus on deepening markets through regulatory simplification, improved settlement systems, enhanced bond market liquidity, and measures encouraging wider retail participation.

Investor Perspective: A predictable and transparent policy environment is seen as essential for sustaining investor confidence. Continued stability could strengthen India’s position as a resilient investment destination while supporting long-term wealth creation for households.