Tax on Mutual Funds India 2025-26
Updated: 3 June 2026 | Budget 2024 Rates | Equity + Debt MF + SIP
Equity MF LTCG (>12 months): 12.5%, exempt up to ₹1.25L/year. STCG (≤12 months): 20%. Debt MF: all gains at slab rate (no LTCG benefit since April 2023). Dividend from MF: slab rate. SIP: FIFO — each installment has its own 12-month clock.
₹1.25L
LTCG on equity MF exempt up to ₹1.25 lakh per year — tax-loss harvest annually to maximize this.
Gains above ₹1.25L taxed at 12.5% (no indexation). Budget 2024 raised exemption from ₹1L to ₹1.25L.
Gains above ₹1.25L taxed at 12.5% (no indexation). Budget 2024 raised exemption from ₹1L to ₹1.25L.
Mutual Fund Tax Rates — FY 2025-26
| Fund Type | Holding Period | Classification | Tax Rate |
|---|---|---|---|
| Equity MF (>65% equity) | >12 months | LTCG (Sec 112A) | 12.5% (exempt ₹1.25L/yr) |
| Equity MF (>65% equity) | ≤12 months | STCG (Sec 111A) | 20% |
| Equity ETF (>65% equity) | >12 months | LTCG (Sec 112A) | 12.5% |
| Debt MF (≤65% equity) | Any period | Slab rate | As per income slab |
| International/FOF (debt treatment) | Any period | Slab rate | As per income slab |
| Balanced/Hybrid >65% equity | >12 months | LTCG (Sec 112A) | 12.5% |
| Balanced/Hybrid >65% equity | ≤12 months | STCG (Sec 111A) | 20% |
| Arbitrage funds (>65% equity) | >12 months | LTCG (Sec 112A) | 12.5% |
| ELSS (Tax-saver fund) | 3 yrs mandatory lock-in | LTCG (Sec 112A) | 12.5% above ₹1.25L |
| Dividend (IDCW) — any fund | — | Income | Slab rate (TDS 10% if >₹5K) |
Debt MF Tax — Before vs After April 2023
| Holding Period | Before April 2023 | After April 2023 |
|---|---|---|
| < 3 years (STCG) | Slab rate | Slab rate (no change) |
| ≥ 3 years (LTCG) | 20% with indexation | Slab rate (indexation removed) |
| Impact at 30% slab | ~5-8% effective tax | 30%+ cess = 31.2% |
Frequently Asked Questions
What is the tax on equity mutual fund gains in FY 2025-26?
Equity mutual funds (>65% allocation to equity) taxed under capital gains: Long-term capital gains (LTCG) — held >12 months: 12.5% without indexation; exemption ₹1.25 lakh per year. Short-term capital gains (STCG) — held ≤12 months: 20%. Both LTCG and STCG apply when STT (Securities Transaction Tax) is paid on redemption — which it is for all equity MF transactions via AMC. These rates are effective from Budget 2024 (23 July 2024). Earlier rates: LTCG 10%, STCG 15%. Health & Education Cess 4% applies on tax.
How is debt mutual fund taxed after the 2023 amendment?
From 1 April 2023, debt mutual funds (≤65% in equity) lost the LTCG indexation benefit: ALL gains (short-term and long-term) are now added to your income and taxed at your income slab rate — regardless of holding period. This means: a 3-year debt MF gain is taxed at 30% if you are in the 30% slab (same as a savings account). Before April 2023: LTCG (>3 years) on debt MF was 20% with indexation — which gave effective tax of 0-5%. This change significantly reduced the tax advantage of debt MFs vs FDs.
How is SIP (Systematic Investment Plan) redemption taxed?
Each SIP installment has its own holding period and cost. FIFO (First In First Out) method applies for redemption — oldest units are redeemed first. Example: ₹10,000 SIP monthly for 2 years; if you redeem ₹2,40,000 after 2 years — the first 12 installments (₹1,20,000) would have been held >12 months (LTCG at 12.5%); remaining installments (<12 months) would attract STCG at 20%. Tip: After 12 months of each installment, redeem old installments first for LTCG treatment. ₹1.25L LTCG exemption applies annually — tax-loss harvesting strategy: redeem and reinvest within exemption limit each year.
Is dividend from mutual funds taxable?
Yes. Dividend from mutual funds (now called "Income Distribution cum Capital Withdrawal" or IDCW) is fully taxable: Added to your total income; taxed at your income slab rate (up to 30%+cess+surcharge). TDS on MF dividend: 10% TDS if total dividend from a fund house exceeds ₹5,000 in a year. For NRIs: 20% TDS on MF dividends. Strategy: For investors in 0-5% slab, growth option + LTCG is usually more tax-efficient than IDCW option. For investors in 30% slab: growth option with LTCG at 12.5% is far better than IDCW at 30%+ slab.
How to show mutual fund gains in ITR?
Mutual fund capital gains in ITR: Download capital gains statement from CAMS/KFintech or individual AMC — shows all transactions, holding periods, gains/losses. In ITR-2 or ITR-3: Schedule CG (Capital Gains) — enter LTCG under "112A" for equity MF; STCG under "111A" for equity MF; debt MF gains under "other than above" as per slab. AIS (Annual Information Statement) on incometax.gov.in also shows MF transaction data — verify before filing. For LTCG: enter each fund separately with date of purchase, sale, purchase value, sale value. Tax-loss harvesting: offset LTCG with any capital losses from the year.
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