Debabrata Banerjee 1, Biswajit Paul 2, Devashish Bhattacharya 3
1 Assistant Professor, Department of Management Studies, NSHM Knowledge Campus, Durgapur, West Bengal, India
Corresponding author: Debabrata Banerjee, E-mail: debabrata.banerjee@nshm.com
2 Assistant Professor, Department of Management Studies, NSHM Knowledge Campus, Durgapur, West Bengal, India
E-mail: biswajitp554@gmail.com
3 Assistant Professor, Department of Management Studies, NSHM Knowledge Campus, Durgapur, West Bengal, India
E-mail: touchdev@yahoo.co.in
Issue: Vol. 2 No. 3 (September 2026) – Anubodhan
Received: 24 August 2026 / Accepted: 7 September 2026 / Published online: 17 September 2026
DOI: https://doi.org/10.65885/anubodhan.v2n3.2026.102
Abstract
This research paper critically examines the recent hikes in Long-Term Capital Gains (LTCG), Short-Term Capital Gains (STCG), and Securities Transaction Tax (STT) in the Indian capital market, introduced through the Finance (No. 2) Act, 2024. The study investigates the apparent policy contradiction wherein the government simultaneously seeks to curb retail participation in derivatives through STCG and STT hikes while taxing long-term investors—who embody patience and perseverance—under LTCG provisions. Through analysis of tax revenue data, trading volumes, demat account growth, and Foreign Portfolio Investment (FPI) flows, this paper evaluates whether the stated objective of controlling speculation aligns with the observed outcome of revenue maximization. The findings indicate that while the government has achieved short-term revenue enhancement (approximately ₹15,000 crore annually from capital gains tax changes), this has come at the cost of reduced market liquidity, declining retail participation in derivative segments, and significant FPI outflows (₹1.58 lakh crore in 2025 alone). The paper concludes that the current tax regime reflects a revenue-centric approach rather than a coherent capital market development strategy, and recommends a relook at LTCG taxation on genuine long-term retail investments.
Keywords: Capital Gains Tax, LTCG, STCG, STT, Retail Participation, Market Liquidity, FPI Flows, Indian Capital Market
How to cite: Banerjee, D., Paul, B., Bhattacharya, & D. (2026). Choking the Golden Goose: An Analytical Study of India’s Capital Gains Tax Hikes and Their Impact on Market Participation, Revenue and Liquidity. Anubodhan, 2(3), 86–102. https://doi.org/10.65885/anubodhan.v2n3.2026.102