If you’ve checked your demat account recently, you’re likely sitting on some “paper profits.” But why is the 2026 Budget causing investors to look at those green numbers with a bit of anxiety? Truth be told, we are currently navigating the first full cycle of the Income Tax Act, 2025, which fundamentally changed the “holding period” game. With the Budget scheduled for February 1st, 2026, the rules of how you keep your profits are about to be recalibrated. How do you ensure you don’t hand over a massive chunk of your hard-earned wealth to the taxman? It starts with a 15-minute audit of your current holdings.
Why the “12.5% vs. 20%” Gap is Your Biggest Risk
Surprisingly, many investors still think in terms of the old 10% LTCG rate. Here is the catch: Since the major overhaul, the flat rate for Long-Term Capital Gains (LTCG) stands at 12.5%, while Short-Term Capital Gains (STCG) have jumped to 20%.
For a ₹10 lakh profit, the difference between selling on Day 364 versus Day 366 is exactly ₹75,000. That is a high price to pay for being impatient. In 2026, the government is also expected to tighten the “Loss Set-off” rules, meaning your ability to carry forward losses from bad trades might become a “one-time-use” coupon rather than a multi-year safety net.
What to Expect in the 2026 Budget:
- The Exemption Bump: Rumors suggest the ₹1.25 lakh exemption limit for equity LTCG could move to ₹2 lakh.
- The “Indexation” Return: While indexation was largely removed, there is a strong lobby for its selective return for senior citizens and long-term property holders.
- Rationalized Holding Periods: We might see a unified 12-month rule for all financial assets, simplifying the current mess of different rules for gold, debt, and equity.
How to Review Your Portfolio Before February 1st
You don’t need a CA to do a basic health check. Follow these three steps to “Budget-proof” your gains:
- Identify “Near-Long-Term” Assets: Look for stocks or mutual funds you bought in early 2025. If they hit the 12-month mark in February or March, do not sell now. Wait for the long-term status to kick in to save that 7.5% tax difference.
- Tax Loss Harvesting: Surprisingly, this is the most underused tool in India. If you have a “dog” in your portfolio that is down 30% and unlikely to recover, sell it now. You can use that loss to offset the tax on your winning stocks.
- Check the ₹1.25 Lakh Buffer: Every individual gets ₹1.25 lakh of LTCG tax-free every year. If you haven’t used this limit for FY 2025-26, consider “booking and reinvesting”—sell your winners to realize the profit and immediately buy them back. This raises your “cost price” for the future, tax-free.
Common Myth vs. Reality
| Myth | Reality |
| “I don’t pay tax if my total income is under ₹12 lakh.” | False. Under the New Regime, the Section 87A rebate does not apply to capital gains. You pay tax on gains even if your salary is zero. |
| “Indexation is still available for real estate.” | The Catch: It’s only available for properties bought before July 23, 2024, if you choose the 20% rate. For new buys, it’s a flat 12.5%. |
| “I can offset my STCG losses against my salary.” | No. Capital losses can only be offset against capital gains. You cannot reduce your salary tax using stock market losses. |
Pro-Tip: If you hold Debt Mutual Funds bought after April 2023, remember they are now taxed at your “slab rate” regardless of how long you hold them. In 2026, if you are in the 30% bracket, these funds are no longer tax-efficient. Consider shifting to Arbitrage Funds which are taxed like equity.
Actionable Summary
- Audit your holding periods: Use your broker’s “Tax P&L” statement to see which assets are currently in the STCG zone.
- Harvest losses by March 31st: Don’t let losses go to waste; use them to bring down your taxable profit.
- Watch the Feb 1st Speech: If the LTCG exemption is raised to ₹2 lakh, wait until after the announcement to book any fresh profits.
People Also Ask (FAQs)
1. What is the current LTCG tax rate for equity in 2026?
As of now, it is 12.5% on gains exceeding ₹1.25 lakh in a financial year. There is no benefit of indexation for listed equities.
2. Can I set off short-term losses against long-term gains?
Yes. A Short-Term Capital Loss (STCL) can be used to reduce both your STCG and LTCG. However, a Long-Term Capital Loss (LTCL) can only be set off against Long-Term gains.
3. Will the 2026 Budget remove the Securities Transaction Tax (STT)?
While investors have been demanding this for years to offset the higher capital gains rates, the government sees STT as a stable revenue source. A total removal is unlikely, though a marginal cut is a common Budget expectation.
4. How is gold taxed in 2026?
Under the new rationalized rules, gold is typically taxed at 12.5% if held for more than 24 months. If sold earlier, it is taxed at your applicable income tax slab rate.