Tax
Capital Gains Tax on Mutual Funds in India, FY 2025-26
Equity, debt and hybrid funds are taxed differently, and the rules changed on 23-07-2024. A clear guide to capital gains tax on mutual funds for FY 2025-26.
IntelliWealthPro Team· Research desk· · 5 min read
Key takeaways
- Equity-oriented funds: STCG 20% if held up to 12 months, LTCG 12.5% above ₹1.25 lakh if held longer (transfers from 23-07-2024).
- Specified mutual funds bought on or after 01-04-2023 are taxed at slab rate whatever the holding period.
- Hybrid, gold and international fund treatment depends on the scheme's portfolio; check the AMC's tax note.
- Short-term losses can offset both short and long-term gains; long-term losses only offset long-term gains.
- Rules here are as of FY 2025-26; verify with a tax professional before filing.
On this page
Capital gains tax on mutual funds in India depends on three things: what the scheme invests in, when the units were bought, and how long they were held. The Finance (No. 2) Act, 2024 changed rates and holding periods for transfers on or after 23-07-2024, and earlier changes in 2023 moved most debt funds to slab-rate taxation.
Rules described here are as of FY 2025-26. Tax law changes often; verify with a tax professional before acting on them.
Equity-oriented mutual funds
An equity-oriented fund is one that invests at least 65% of its assets in equity shares of domestic listed companies. Most equity schemes and arbitrage funds meet this test.
Short-term capital gains (held 12 months or less)
- Taxed at 20% under Section 111A for transfers on or after 23-07-2024 (earlier 15%).
- Applies because Securities Transaction Tax (STT) is paid on the redemption of equity fund units.
Long-term capital gains (held more than 12 months)
- Taxed at 12.5% under Section 112A on gains above ₹1.25 lakh in a financial year, for transfers on or after 23-07-2024 (earlier 10% above ₹1 lakh).
- No indexation benefit.
- The ₹1.25 lakh exemption is a single annual limit shared across all Section 112A gains, meaning listed equity shares and equity-oriented fund units together, not per scheme.
Units bought before 01-02-2018 also get a stepped-up cost under the grandfathering rule. See our explainer on grandfathering of equity gains.
Debt funds and "specified mutual funds"
Bought on or after 01-04-2023
Section 50AA treats gains on "specified mutual fund" units bought on or after 01-04-2023 as short-term in all cases. The gain is added to income and taxed at the investor's slab rate, regardless of holding period, with no indexation.
From FY 2025-26, a specified mutual fund broadly means a fund that invests more than 65% of its assets in debt and money-market instruments, or a fund that invests 65% or more in such funds. This narrowed the earlier definition, so some funds that were caught by Section 50AA before, such as certain hybrid or fund-of-fund structures, may now fall outside it.
Bought before 01-04-2023
For debt fund units bought before 01-04-2023 and transferred on or after 23-07-2024:
- Held more than 24 months: long-term, taxed at 12.5% without indexation.
- Held 24 months or less: short-term, taxed at slab rate.
Hybrid, gold, international and other funds
These do not fit neatly into one bucket. Category-wise treatment for hybrid, gold and international funds depends on the scheme's actual portfolio, so check the AMC's tax note in the scheme documents. As a general rule for units outside both the equity-oriented and specified mutual fund definitions:
- Listed units become long-term after 12 months.
- Unlisted units (most regular MF units) become long-term after 24 months.
- LTCG is taxed at 12.5% without indexation; STCG at slab rate.
Summary table
| Fund type | Short-term if held | STCG rate | LTCG rate |
|---|---|---|---|
| Equity-oriented (65%+ domestic listed equity) | Up to 12 months | 20% | 12.5% above ₹1.25 lakh per FY |
| Specified MF, bought on/after 01-04-2023 | Always short-term | Slab rate | Not applicable |
| Debt fund, bought before 01-04-2023 | Up to 24 months | Slab rate | 12.5%, no indexation |
| Other funds, listed units | Up to 12 months | Slab rate | 12.5% |
| Other funds, unlisted units | Up to 24 months | Slab rate | 12.5% |
Rates are for transfers on or after 23-07-2024. Surcharge and 4% health and education cess apply on top. For Section 111A and 112A gains, the surcharge is capped at a lower level than on other income; confirm the current cap with a tax professional.
An illustrative calculation (hypothetical)
Suppose an investor redeems equity fund units in FY 2025-26 and has no other Section 112A gains that year.
| Item | Amount (₹) |
|---|---|
| Sale value | 5,00,000 |
| Cost of units sold (FIFO) | 3,25,000 |
| Long-term gain | 1,75,000 |
| Less: annual exemption | 1,25,000 |
| Taxable LTCG | 50,000 |
| Tax at 12.5% | 6,250 |
| Cess at 4% | 250 |
| Total (before surcharge, if any) | 6,500 |
These numbers are for illustration only and do not reflect any scheme's performance.
How units are matched: FIFO
When only part of a holding is redeemed, units are treated as sold on a first-in, first-out basis. For a SIP, each instalment has its own purchase date and cost, so a single redemption can include some long-term units and some short-term units. This is why a SIP redemption often produces both STCG and LTCG.
Setting off losses
- Short-term capital loss can be set off against both short-term and long-term capital gains.
- Long-term capital loss can be set off only against long-term capital gains.
- Unabsorbed capital losses can be carried forward for 8 assessment years, but only if the income tax return for the loss year is filed by the due date.
IDCW (dividend) taxation
- IDCW received is added to income and taxed at the investor's slab rate.
- AMCs deduct TDS at 10% on IDCW above a threshold per AMC per financial year. The threshold was raised to ₹10,000 from FY 2025-26; verify the current limit with the Income Tax Department.
- Non-residents face different TDS rates and treaty considerations.
Where to get the numbers
CAMS and KFintech provide capital gains statements for a chosen financial year, showing purchase and sale dates, cost, sale value and the split into short and long-term gains. The consolidated CAS lists transactions but not the tax computation. Many investors share these statements with their tax professional. Back-office software such as IntelliWealthPro can prepare realised gain reports for a distributor's clients from transaction data, which helps during the filing season.
To track how a holding has performed before deciding anything about it, see how to calculate XIRR for a SIP.
A final reminder
The rules above reflect the position as of FY 2025-26. Budgets and finance acts change rates, thresholds and definitions, sometimes mid-year. Always verify with a tax professional and the Income Tax Department before filing a return or planning a redemption.
Information only. Not investment advice. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.
Frequently asked questions
What is the LTCG tax rate on equity mutual funds now?
For transfers on or after 23-07-2024, long-term gains on equity-oriented fund units held more than 12 months are taxed at 12.5% on the amount above ₹1.25 lakh in a financial year, plus applicable surcharge and cess.
How are debt funds bought after 01-04-2023 taxed?
Gains on specified mutual fund units bought on or after 01-04-2023 are taxed at the investor's slab rate regardless of holding period, under Section 50AA, without indexation.
Is the ₹1.25 lakh exemption per fund?
No. It is a single limit per financial year shared across all Section 112A gains, which includes listed equity shares and equity-oriented fund units.
How is IDCW from a mutual fund taxed?
IDCW is added to income and taxed at the investor's slab rate. AMCs deduct TDS on IDCW above a threshold per AMC per financial year; verify the current threshold with the Income Tax Department or a tax professional.
Mutual fund investments are subject to market risks; read all scheme-related documents carefully. This article is general information for mutual fund distributors and their clients. It is not investment, tax or legal advice and not a recommendation to buy, sell or hold any scheme. Past performance does not indicate future returns.