Mutual Fund Capital Gains Tax
Equity 12.5%, Debt at Slab
How mutual funds are taxed in India — equity funds under Sections 112A/111A, debt funds at slab rate after 1 April 2023, plus ELSS, hybrid, gold, SIP FIFO and how to report it in your ITR.
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 Indexation was withdrawn.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 →Frequently Asked Questions
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TaxClue's CA-led team computes your equity, debt and ELSS capital gains — the 12.5% and 20% equity rates, debt slab-rate treatment, the ₹1.25 lakh exemption, SIP FIFO and loss set-off — and files your ITR accurately, 100% online across India.