Mutual fund tax depends on the fund type and holding period. Equity funds (≥65% in Indian equity): gains on units held up to 12 months are STCG taxed at 20% under Section 111A; over 12 months are LTCG taxed at 12.5% above a ₹1.25 lakh yearly exemption under Section 112A, with no indexation. Debt funds bought on/after 1 April 2023 are always taxed at your slab rate. ELSS is an equity fund with a 3-year lock-in that also gets an 80C deduction. These rates apply for FY 2025-26 (transfers on/after 23 Jul 2024).
Mutual Fund Tax Rates — FY 2025-26
Every common fund category, with the holding period that makes a gain long-term and the rate that applies for transfers on or after 23 July 2024.
| Fund type | Holding for LTCG | STCG | LTCG |
|---|---|---|---|
| Equity fund (≥65% equity) | > 12 months | 20% (111A) | 12.5% above ₹1.25L (112A) |
| ELSS (tax-saver equity) | > 12 months* | N/A — 3-yr lock | 12.5% above ₹1.25L |
| Aggressive hybrid (≥65% equity) | > 12 months | 20% | 12.5% above ₹1.25L |
| Debt fund (bought on/after 1 Apr 2023) | No LTCG | Slab | Slab |
| Conservative hybrid (<65% equity) | > 24 months | Slab | 12.5% no indexation |
| Gold / international / FoF (<65% Indian equity) | > 24 months | Slab | 12.5% no indexation |
* ELSS units are locked for 3 years, so on redemption every gain is long-term (held >12 months). Debt funds bought before 1 Apr 2023 & held >24 months, sold on/after 23 Jul 2024, are taxed at 12.5% without indexation.
Budget 2024 (effective 23 July 2024) raised equity-fund STCG from 15% to 20% and LTCG from 10% to 12.5%, lifted the LTCG exemption from ₹1 lakh to ₹1.25 lakh, and removed indexation for the assets moved to 12.5%. For redemptions between 1 April and 22 July 2024 the old 15% / 10% / ₹1 lakh rates still applied.
Equity Mutual Fund Tax — STCG 20% vs LTCG 12.5%
A fund is equity-oriented when at least 65% of its corpus is in Indian equity. Sell within 12 months and the gain is short-term at a flat 20%; hold beyond 12 months and only the LTCG above ₹1.25 lakh (across all your 112A gains combined) is taxed at 12.5%.
STCG — held ≤ 12 months
- Section 111A flat rate (raised from 15%)
- Applies to units sold within 12 months
- No ₹1.25 lakh exemption cushion
- Same 20% regardless of your slab
LTCG — held > 12 months
- Section 112A on gains above ₹1.25 lakh/yr
- ₹1.25 lakh is a single combined threshold
- No indexation available
- Flat 12.5% under old & new regime
Suppose you redeem equity-fund units held over a year with a total long-term gain of ₹3,00,000 in FY 2025-26. Only the amount above ₹1.25 lakh is taxed.
LTCG on equity fund (>12 mo)
STCG on equity fund (≤12 mo)
Add 4% health & education cess (and surcharge if applicable). Estimate your liability with the income-tax calculator and report equity LTCG in Schedule 112A of your ITR.
The ₹1.25 lakh LTCG exemption is a single yearly threshold shared across all your Section 112A gains — equity funds plus listed shares combined — not per scheme or per redemption. It does not apply to STCG and does not carry forward if unused.
Debt Fund Tax — Slab Rate Since 1 April 2023
Under the Finance Act 2023 (Section 50AA), units of a specified mutual fund — a fund with not more than 35% in Indian equity, i.e. most debt funds — bought on or after 1 April 2023 are always taxed at your slab rate whatever the holding period. There is no long-term benefit and no indexation.
| Debt / other fund scenario | Holding period | Tax treatment |
|---|---|---|
| Debt fund bought on/after 1 Apr 2023 | Any | Slab rate — always (no LTCG, no indexation) |
| Debt fund bought before 1 Apr 2023, sold on/after 23 Jul 2024 | > 24 months | 12.5% without indexation |
| Debt fund bought before 1 Apr 2023 | ≤ 24 months | Slab rate (short-term) |
| Gold / international / conservative-hybrid fund | > 24 months | 12.5% LTCG, no indexation |
| Gold / international / conservative-hybrid fund | ≤ 24 months | Slab rate (short-term) |
A fund with ≥65% Indian equity is taxed as an equity fund; one between 35% and 65% (and non-specified) uses the 24-month long-term rule at 12.5% without indexation.
Before April 2023, debt-fund LTCG (held >36 months) was 20% with indexation. For units bought on or after 1 April 2023 that benefit is gone — gains are added to your income and taxed at slab, so a 30%-bracket investor pays 30% on the whole gain. Only units held from before 1 April 2023 keep any long-term treatment.
Sold a mix of equity and debt funds this year? Get your capital gains computed and filed correctly.
File ITR with a CA →ELSS — 80C Deduction on Equity Funds
ELSS (Equity Linked Savings Scheme) is an equity mutual fund that qualifies for a deduction of up to ₹1.5 lakh under Section 80C (old regime only) and carries the shortest lock-in among 80C options — 3 years. Because units are locked for 3 years, every redemption is long-term, so gains are taxed as LTCG at 12.5% above ₹1.25 lakh, just like any other equity fund.
- 80C deduction up to ₹1.5 lakh — available only in the old tax regime
- 3-year lock-in — shortest among 80C investments
- Gains taxed as equity LTCG at 12.5% above ₹1.25 lakh
- No exit before 3 years; SIP instalments each lock in for 3 years
TDS on Redemption & How to Report in ITR
- Resident investors: no TDS on redemption of equity or debt fund units — you pay the tax yourself as advance tax or at filing.
- NRI investors: the AMC deducts TDS on capital gains — broadly 20% on equity STCG, 12.5% on equity LTCG, and slab/specified rates on debt (plus surcharge and cess) under Section 195.
- Dividends (IDCW): taxed at your slab rate; the AMC deducts 10% TDS if dividend from a fund house exceeds ₹10,000 in the year.
- Report equity LTCG in Schedule 112A, other gains in Schedule CG, using the capital-gains statement from CAMS or KFintech — usually in ITR-2 or ITR-3.
Tax planning that helps
- Booking LTCG up to ₹1.25 lakh each year tax-free
- Holding equity funds beyond 12 months for the 12.5% rate
- Using ELSS for an 80C deduction in the old regime
Watch out for
- Debt funds now taxed fully at slab — no LTCG benefit
- 20% STCG if you exit equity funds within 12 months
- Every gain must be reported even if below ₹1.25 lakh
Frequently Asked Questions
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