Mutual fund capital gains tax depends on the fund type and holding period. Equity funds (≥65% Indian equity) held over 12 months are LTCG taxed at 12.5% on gains above a ₹1.25 lakh yearly exemption under Section 112A; held 12 months or less they are STCG at 20% under Section 111A. Debt funds bought on/after 1 April 2023 are taxed at your income-tax slab rate on all gains — no LTCG, no indexation. These rates apply from 23 July 2024 and continue for FY 2025-26.
Mutual Fund Tax Rates by Fund Type
How each category of mutual fund is taxed in FY 2025-26. "Equity" means at least 65% of the corpus is in Indian equity; "debt/specified" covers funds with 35% or less equity bought on or after 1 April 2023.
| Fund type | Holding | Gain | Tax rate | Indexation |
|---|---|---|---|---|
| Equity MF (≥65% equity) | > 12 months | LTCG u/s 112A | 12.5% above ₹1.25 L | No |
| Equity MF (≥65% equity) | ≤ 12 months | STCG u/s 111A | 20% flat | No |
| ELSS (equity, 3-yr lock-in) | Always > 12 months | LTCG u/s 112A | 12.5% above ₹1.25 L | No |
| Arbitrage / equity savings (≥65%) | > 12 months | LTCG u/s 112A | 12.5% above ₹1.25 L | No |
| Debt / specified fund (bought ≥ 1 Apr 2023) | Any | Deemed short-term (Sec 50AA) | Slab rate | No |
| Gold fund / international FOF (≤35% equity) | Any (bought ≥ 1 Apr 2023) | Deemed short-term | Slab rate | No |
Rates verified on incometax.gov.in for FY 2025-26 (AY 2026-27); equity rates effective 23 Jul 2024. Add 4% cess and surcharge if applicable.
Budget 2024 (effective 23 July 2024) raised equity LTCG from 10% to 12.5% and STCG from 15% to 20%, and lifted the yearly LTCG exemption from ₹1 lakh to ₹1.25 lakh. Indexation was withdrawn. Budget 2025 retained this structure for FY 2025-26.
Equity Funds vs Debt Funds — Tax Compared
Equity mutual funds (LTCG)
- ≥65% invested in Indian equity
- LTCG (>12 months) at 12.5% above ₹1.25 L/yr
- STCG (≤12 months) at 20% flat u/s 111A
- No indexation; STT-paid concessional rates
Debt funds (bought ≥ 1 Apr 2023)
- ≤35% equity — specified fund u/s 50AA
- All gains taxed at your income-tax slab rate
- No long-term benefit, no indexation
- Same tax treatment as a bank fixed deposit
STCG vs LTCG on Equity Funds
STCG · held ≤ 12 months
- Taxed under Section 111A at 20% flat
- Flat special rate — not your slab
- No ₹1.25 lakh exemption applies
- Applies to redemptions on/after 23 Jul 2024
LTCG · held > 12 months
- Taxed under Section 112A at 12.5%
- First ₹1.25 lakh of gains each year is exempt
- Only the amount above ₹1.25 L is taxed
- No indexation on the gain
The ₹1.25 lakh LTCG exemption is a single combined threshold across all your equity funds and listed shares in a year — not per fund. It applies only to long-term equity gains, never to STCG, and it does not carry forward if unused. Harvesting gains up to ₹1.25 lakh each year is a common way to use it.
Debt Funds After 1 April 2023
From 1 April 2023, debt and other specified mutual funds (35% or less in equity) bought on or after that date lost the long-term benefit. Under Section 50AA, every gain — whether held one month or ten years — is treated as short-term and taxed at your slab rate, with no indexation. This removed the tax edge debt funds had over fixed deposits.
- Bought on/after 1 Apr 2023: always slab-rate, no LTCG, no indexation.
- Bought before 1 Apr 2023: if held over 24 months, gains are LTCG at 12.5% (no indexation) after 23 Jul 2024.
- A 30%-slab investor pays 30% (plus cess/surcharge) on debt-fund gains — same as on FD interest.
- Gold funds and international fund-of-funds with ≤35% equity follow the same slab-rate rule.
How Equity MF LTCG Is Calculated
Suppose you redeem equity mutual fund units held over a year with a total long-term gain of ₹3,25,000 in FY 2025-26. Only the amount above the ₹1.25 lakh exemption is taxed.
Equity LTCG (>12 months)
Equity STCG (≤12 months)
Add 4% health & education cess (and surcharge if applicable). Estimate your total liability with the income-tax calculator and report the gains in Schedule 112A / Schedule CG of your ITR. Compare fund options in our capital gains calculation guide.
ELSS, Hybrid & SIP (FIFO) Taxation
- ELSS: equity fund with a 3-year lock-in; investment qualifies for Section 80C up to ₹1.5 lakh (old regime only). Since the lock-in exceeds 12 months, every redemption is LTCG at 12.5% above ₹1.25 lakh.
- Hybrid funds: aggressive hybrid/arbitrage with ≥65% equity are taxed like equity; conservative/debt-oriented hybrids (≤35% equity) follow debt slab-rate rules.
- SIP redemptions: the FIFO method applies — the earliest-bought units are sold first, so each instalment is tracked with its own holding period and cost.
- STT: paid on equity fund redemptions, which secures the concessional 112A/111A rates.
The ₹1.5 lakh Section 80C deduction on ELSS investment is available only under the old tax regime. Under the new regime you get no 80C, but the 12.5% LTCG treatment on redemption is unchanged. See our new tax regime guide before you choose.
Reporting MF Gains & Loss Set-off
- Salaried investors with MF capital gains generally file ITR-2 (ITR-3 if you also have business income); ITR-1 is not allowed for most capital gains.
- Download the Capital Gains Statement from CAMS, KFintech or your broker (Zerodha/Groww) for the full year before filing.
- STCG loss can be set off against STCG or LTCG; LTCG loss only against LTCG.
- Unabsorbed capital loss can be carried forward 8 years — only if you file the ITR by the due date.
Redeemed mutual funds this year? Get your equity, debt and ELSS gains computed and filed correctly.
File ITR with a CA →- Sections 111A, 112A & 50AA, Income-tax Act: incometax.gov.in
- Equity LTCG 12.5% / STCG 20% / ₹1.25 lakh (Budget 2024, eff. 23 Jul 2024)
- Debt/specified funds slab-rate: Section 50AA (Finance Act 2023, from 1 Apr 2023)
- Rates retained for FY 2025-26 (AY 2026-27) — Budget 2025
Disclaimer: This guide is general information based on the law and notifications in force when it was last updated. It is not professional advice for your case — rates, thresholds and due dates change, so check the current position or speak to our CA team before you act on it.