Mutual Fund Taxation in India: Complete Guide to LTCG, STCG & Debt Funds
The Union Budget 2024 introduced sweeping overhauls to Indian capital gains tax. Whether you hold equity funds, hybrid funds, or debt mutual funds, knowing your tax liability ensures optimal portfolio rebalancing.
Equity Mutual Funds: The New Holding Period & Tax Slabs
Equity mutual funds are those investing at least 65% of total assets in domestic listed equities.
Short-Term Capital Gains (STCG): If units are redeemed within 12 months from purchase, gains are taxed at 20% flat (plus 4% cess).
Long-Term Capital Gains (LTCG): If units are held for more than 12 months, aggregate gains across all equity instruments up to ₹1.25 Lakh per financial year are 100% tax-free. Gains above ₹1.25 Lakh are taxed at 12.5% without indexation.
Key Practical Takeaways:
Debt Mutual Funds & Conservative Hybrids
Post-April 2023 amendment, specified mutual funds (investing less than 35% in domestic equity) lose indexation benefits.
All capital gains from specified debt mutual funds, regardless of holding duration, are added directly to your taxable income and taxed at your marginal slab rate.
Summary of Mutual Fund Tax Rates in India (FY 2024-25 & 2025-26)
| Category | Holding Period Threshold | STCG Tax Rate | LTCG Tax Rate | Annual Exemption |
|---|---|---|---|---|
| Equity Funds (>65% Equity) | 12 Months | 20% + Cess | 12.5% + Cess | ₹1,25,000 per financial year |
| Equity-Oriented Hybrids | 12 Months | 20% + Cess | 12.5% + Cess | ₹1,25,000 per financial year |
| Debt Funds (<35% Equity) | No LTCG benefit | Slab Rate | Slab Rate | Nil |
| Gold ETFs & Silver Funds | 12 to 24 Months | Slab Rate / 20% | 12.5% post-amendment | Nil |
Common Questions on This Topic
Does SIP have one combined holding period or separate dates?
Each monthly SIP instalment is treated as an independent purchase with its own 12-month holding clock under the First-In First-Out (FIFO) method.