long term capital gains tax applies when mutual fund units are sold after a holding period. for equity funds, that period is more than 12 months. for debt funds, things changed after april 2023.
equity gains above ₹1.25 lakh in a financial year are taxed at 12.5%. debt funds bought after april 1, 2023 do not get any ltcg benefit. all gains are taxed at the individual’s slab rate.
ltcg rates for different mutual funds
| fund type | holding period for ltcg | ltcg rate | exemption |
|---|---|---|---|
| equity mutual funds | more than 12 months | 12.5% | ₹1.25 lakh per year |
| debt funds (before april 1, 2023) | more than 24 months | 12.5% | none |
| debt funds (on or after april 1, 2023) | not applicable | slab rate | none |
| hybrid funds (65%+ equity) | more than 12 months | 12.5% | ₹1.25 lakh per year |
how ltcg tax is calculated
step 1. find the gain. sale price minus purchase price.
step 2. check holding period. equity funds need more than 12 months. debt funds bought before april 2023 need more than 24 months.
step 3. apply exemption. for equity funds, first ₹1.25 lakh of gains is tax-free.
step 4. apply tax rate. remaining gain taxed at 12.5%.
step 5. add cess. 4% health and education cess on the tax amount.
example. ₹5,00,000 invested in equity fund. sold for ₹7,50,000 after 14 months. gain is ₹2,50,000. exemption is ₹1,25,000. taxable gain is ₹1,25,000. tax at 12.5% is ₹15,625. cess is ₹625. total tax is ₹16,250.
what changed in budget 2024
budget 2024 changed equity tax rates.
before july 23, 2024. stcg was 15%. ltcg was 10% above ₹1 lakh.
on or after july 23, 2024. stcg is 20%. ltcg is 12.5% above ₹1.25 lakh.
these rates continue for fy 2026-27.
debt mutual fund taxation after april 2023
units bought before april 1, 2023. held over 24 months get ltcg at 12.5% without indexation.
units bought on or after april 1, 2023. no ltcg benefit. all gains taxed at slab rate. no indexation. no special rate.
this applies to any fund with less than 35% equity. hybrid funds with less than 65% equity also fall here.
how to reduce ltcg tax legally
use the ₹1.25 lakh exemption every year. sell equity units to book gains up to ₹1.25 lakh. reinvest. this resets the cost base.
offset losses against gains. short term losses can offset both stcg and ltcg. long term losses can offset only ltcg.
stagger redemptions across financial years. selling in march and april splits gains across two years.
use section 54f exemption. if ltcg is reinvested in a residential property, the gain can be exempt.
frequently asked questions
1. is the ₹1.25 lakh exemption per fund or total?
total across all equity investments. not per fund.
2. what is the ltcg rate on debt funds bought after april 2023?
slab rate. no ltcg. no indexation.
3. can i claim ltcg exemption if my total income is below the taxable limit?
the ₹1.25 lakh exemption applies separately. filing itr may still be required.
4. how does cess affect ltcg tax?
4% health and education cess on the tax amount.
5. what is the holding period for equity mutual funds?
more than 12 months for ltcg. 12 months or less is stcg at 20%.
