Understanding capital gains tax on mutual fund investments in India
Mutual fund investments in India are subject to capital gains tax. The tax rate and holding period requirements depend on the type of mutual fund scheme. This guide covers the latest tax rules effective from July 23, 2024.
The profit you make when you sell (redeem) your mutual fund units at a price higher than what you paid for them. For example, if you bought units at ₹100 and sold them at ₹150, your capital gain is ₹50 per unit.
If you sell your units at a price lower than what you paid, you incur a capital loss. These losses can be set off against capital gains to reduce your overall tax liability.
Capital gains are classified as Short-Term or Long-Term based on how long you held the investment:
Funds that invest 65% or more of their assets in domestic equity shares.
Holding Period
≤ 12 months
Tax Rate
20%
Plus applicable cess
Holding Period
\u003e 12 months
Tax Rate
12.5%
Plus applicable cess
₹1.25 Lakh Exemption
LTCG up to ₹1.25 lakh per financial year is tax-free
Funds that invest primarily in fixed-income securities with less than 35% exposure to equity.
For debt mutual fund units purchased on or after April 1, 2023, all gains are taxed as Short-Term Capital Gains at your applicable income tax slab rate, regardless of the holding period. The indexation benefit and LTCG classification are no longer available.
All Gains (Any holding period)
Taxed at your Income Tax Slab Rate
10%, 15%, 20%, or 30% based on your total income
STCG (≤ 24 months)
At your Income Tax Slab Rate
LTCG (\u003e 24 months)
12.5% (without indexation)
Taxation depends on the equity allocation of the fund.
Taxed same as Equity Mutual Funds
STCG (≤ 12 months): 20%
LTCG (\u003e 12 months): 12.5%
₹1.25L exemption applies
Includes balanced hybrid funds, conservative hybrid funds, etc.
If equity is 35-65%:
STCG (≤ 24 months): At slab rate
LTCG (\u003e 24 months): 12.5%
If equity \u003c 35%:
Treated as debt funds
(see debt fund taxation above)
These invest in other domestic mutual fund schemes. Taxation depends on the underlying fund types:
FoFs that invest in foreign indices or international funds.
All gains are taxed at your income tax slab rate
No differentiation between short-term and long-term for taxation purposes
| Fund Type | Holding Period | STCG Tax | LTCG Tax |
|---|---|---|---|
| Equity Funds | 12 months | 20% | 12.5% (₹1.25L exemption) |
| Debt Funds (bought ≥ Apr 1, 2023) | N/A | At slab rate (all gains) | |
| Debt Funds (bought \u003c Apr 1, 2023) | 24 months | At slab rate | 12.5% |
| Equity Hybrid (≥65% equity) | 12 months | 20% | 12.5% (₹1.25L exemption) |
| Debt Hybrid (\u003c35% equity) | - | Same as debt funds | |
| Overseas FoF | - | At slab rate (all gains) | |