Capital Gains Tax Updates for FY 2026: Key Changes for ULIPs, FIIs, and AIFs
Tue, 18 Feb 2025
2 mins
Capital Gains Tax Changes for FY 2026 (AY 2026-27)
Finance Minister Nirmala Sitharaman introduced targeted revisions to the capital gains tax structure in the Budget 2025.
While the core tax rates and holding periods for determining long-term capital gains (LTCG) and short-term capital gains (STCG) remain unchanged, specific updates were announced, effective from April 1, 2026.
Here's a breakdown of the key changes:
-
Key Takeaways
- ULIPs: Premiums over Rs 2.5 lakh taxed at 12.5% LTCG.
- FIIs: LTCG on specific securities increased to 12.5%.
- AIFs: Income treated as capital gains at a 12.5% tax rate.
-
Unit Linked Insurance Plans (ULIPs)
In a significant shift, the government has removed the ₹2.5 lakh threshold for taxing Unit-Linked Insurance Policies (ULIPs). From April 1, 2026, ULIP returns on premiums exceeding ₹2.5 lakh will be taxed as capital gains, with long-term gains (for policies held over a year) taxed at 12.5%.
Previously, ULIPs were taxed as income from other sources, with rates reaching up to 30%, based on income tax slabs. Finance Minister Nirmala Sitharaman announced this update in the 2025 Budget, confirming that ULIPs with premiums above ₹2.5 lakh will now be treated under capital gains tax rules.
This amendment, effective for the assessment year 2026-27, aligns ULIP taxation with equity mutual funds, simplifying the tax framework and clarifying the treatment of ULIP returns. -
Foreign Institutional Investors (FIIs)
The Finance Bill 2025 proposes an increase in the LTCG tax rate on specific securities from 10% to 12.5%, effective financial year 2025-26 i.e., April 1, 2025. This aligns with the previous year's hike for listed equity shares, equity-oriented mutual funds, and business trust units sold by FIIs (securities covered under section 112A).
-
Alternative Investment Funds (AIFs)
The definition of "capital asset" under the Income Tax Act has been expanded to include any securities held by Category I and Category II AIFs.
Accordingly, Gains generated by such Category I and II AIFs on transfer of securities held will now be treated as capital gains, subject to a 12.5% tax rate from financial year 2025-26 i.e., April 1, 2025. If classified as business income, this income would face higher tax rates— upto 39%. With this amendment, the ambiguity on characterisation of gains on transfer of securities held by such AIFs is now addressed.
Stay updated with InCred Premier for more insights on tax changes and wealth management strategies.
Start your investment journey with InCred Premier today
