mutual fund tax depends on three things. fund type. holding period. purchase date.
a 9-month holding and an 18-month holding can have very different tax outcomes. same profit. different tax.
here is how the calculation works.
step 1. find the fund type
tax rules depend on the category.
equity-oriented funds. invest at least 65% in equity shares. large-cap, mid-cap, small-cap, elss, and aggressive hybrid funds fall here.
debt and non-equity funds. invest less than 65% in equity. pure debt funds, conservative hybrids, gold funds, and international funds fall here.
specified mutual funds. debt funds with more than 65% in debt, bought on or after april 1, 2023.
step 2. check the holding period
holding period decides if gains are short-term or long-term.
equity-oriented funds. 12 months or less = short-term. more than 12 months = long-term.
debt and non-equity funds (bought before april 1, 2023). 24 months or less = short-term. more than 24 months = long-term.
specified mutual funds (debt funds bought on or after april 1, 2023). all gains are short-term. holding period does not matter.
step 3. calculate the gain
gain = sale price minus purchase price.
equity-oriented funds. purchase price is the cost. sale price is the redemption value. exit loads are deducted from the sale price.
debt funds (pre-april 2023). same calculation.
specified mutual funds (post-april 2023). same calculation. taxed at slab rate regardless of holding period.
step 4. apply the tax rate
equity-oriented funds.
| holding period | tax rate |
|---|---|
| 12 months or less (stcg) | 20% |
| more than 12 months (ltcg) | 12.5% on gains above ₹1.25 lakh |
first ₹1.25 lakh of ltcg in a financial year is tax-free. this limit applies to all equity investments combined. not per fund.
debt and non-equity funds (bought before april 1, 2023).
| holding period | tax rate |
|---|---|
| 24 months or less (stcg) | slab rate |
| more than 24 months (ltcg) | 12.5% |
specified mutual funds (debt funds bought on or after april 1, 2023).
| holding period | tax rate |
|---|---|
| any period | slab rate |
no indexation. no special rate. no exemption limit.
step 5. add cess and surcharge
health and education cess of 4% applies on the tax amount. surcharge may apply if total income exceeds specified limits. the rates above are base rates. add cess on top.
example. equity fund ltcg
₹5,00,000 invested in an equity fund in 2022. redeemed for ₹7,50,000 in 2026. holding period is more than 12 months.
gain = ₹2,50,000.
exemption = ₹1,25,000.
taxable gain = ₹1,25,000.
tax = ₹1,25,000 × 12.5% = ₹15,625.
cess = ₹625.
total tax = ₹16,250.
example. short-term equity gain
₹5,00,000 invested in an equity fund. redeemed for ₹6,20,000 after 9 months.
gain = ₹1,20,000.
holding period = less than 12 months.
tax at 20% = ₹24,000.
cess = ₹960.
total tax = ₹24,960.
waiting 9 more months would have saved ₹21,710 in tax.
special rules
sip investments. each instalment has its own holding period. fifo method is used for redemptions. earliest units are redeemed first.
dividends. dividends from mutual funds are added to income. taxed at slab rate. tds at 10% if dividend exceeds ₹10,000 from a single payer.
elss. three-year lock-in. all redemptions are ltcg. tax at 12.5% on gains above ₹1.25 lakh. section 80c deduction up to ₹1.5 lakh is available.
frequently asked questions
1. what is the ltcg rate on equity mutual funds in 2026?
12.5% on gains above ₹1.25 lakh in a financial year. gains within the limit are tax-free.
2. are debt funds taxed at slab rate?
debt funds bought on or after april 1, 2023 are taxed at slab rate. pre-april 2023 funds get 12.5% ltcg if held over 24 months.
3. how are sips taxed?
each instalment has its own holding period. fifo method is used for redemptions.
4. what is the ₹1.25 lakh exemption limit?
it is the annual ltcg exemption for all equity investments combined. not per fund.
5. is indexation available for debt funds?
no. indexation is not available for any debt fund redemption on or after july 23, 2024.
