For equity-oriented mutual funds (≥65% in Indian equities), STCG is 20% if units are sold within 12 months and LTCG is 12.5% on gains above ₹1.25 lakh if held ≥12 months (both for sales on/after 23 July 2024). Debt/gold/international funds classified as “specified mutual funds” (SMFs) bought on/after 1 Apr 2023 are taxed at your slab rate regardless of holding period. (Press Information Bureau, Income Tax India, AMFI India)
Why this matters
Tax treatment can materially change your post-tax returns. Knowing your fund’s category, acquisition date, and sale date helps you decide when to redeem, harvest losses, and plan cashflows.
What is an “equity-oriented fund” (EOF)?
A scheme with ≥65% of assets in equity shares of domestic companies (special rules exist for FoFs; see below). STT applies on redemptions/sales of EOF units; STT isn’t deductible from capital gains. (AMFI India)
FoF exception (when is a FoF “equity”)?
A Fund-of-Funds is treated as equity-oriented only if it invests ≥90% in another fund that itself invests ≥90% in domestic equities (else it’s taxed as non-equity). (AMFI India)
Current tax rates & holding periods (sales on/after 23 July 2024)
Equity-oriented mutual funds (EOF)
- STCG (holding <12 months): 20% (Section 111A).
- LTCG (holding ≥12 months): 12.5% on gains over ₹1.25 lakh; no indexation (Section 112A).
- Surcharge/Cess: As applicable; health & education cess 4%; surcharge caps per income slab apply. (Press Information Bureau, Income Tax India, AMFI India)
Debt/Gold/International funds acquired on or after 1 Apr 2023 (Specified Mutual Funds, Section 50AA)
- All gains deemed short-term → taxed at your slab rate (no indexation), irrespective of holding period.
- SMF (FY 2024-25): funds with ≤35% in domestic equity; from FY 2025-26, definition realigned to debt-oriented funds (>65% in debt/money market) and their FoFs. (AMFI India)
Other non-equity schemes (not covered by 50AA)
- Holding period for LTCG: 12 months (listed units) / 24 months (unlisted) if sale is on/after 23 July 2024 (was 36 months earlier).
- LTCG rate under Section 112: 12.5% without indexation for transfers on/after 23 July 2024; 20% with indexation if sold before that date. (AMFI India)
Cut-over rules for equity funds sold before 23 Jul 2024: STCG @15%; LTCG @10% above ₹1 lakh. For sales on/after 23 Jul 2024: STCG @20%; LTCG @12.5% above ₹1.25 lakh. (AMFI India)
How to compute capital gains on mutual funds
Formula:
Capital Gain = Sale Value − (Purchase Cost + Transfer Expenses)
Notes:
- STT is not deductible.
- For SIPs, each installment has its own purchase date; redemptions typically follow FIFO, so holding periods differ across units. (General practice per AMCs/regulations.)
- Fund expenses are already reflected in NAV.
Example (Equity fund sold after 23 Jul 2024)
- Units held ≥12 months, total sale gain in FY = ₹2,00,000.
- Exemption = ₹1,25,000 → Taxable LTCG = ₹75,000.
- Tax = 12.5% × 75,000 = ₹9,375 (+ 4% cess, applicable surcharge). (Press Information Bureau)
Legacy debt holdings bought before 1 Apr 2023
- If sold before 23 Jul 2024: LTCG after 36 months taxed at 20% with indexation (old rule).
- If sold on/after 23 Jul 2024: LTCG taxed at 12.5% without indexation (new Section 112 rate). Plan redemptions accordingly. (AMFI India)
Dividends vs capital gains (quick check)
- Dividends from mutual funds are taxed at your slab rate in your hands; TDS by AMC @10% on dividend payouts above ₹5,000/year.
- No TDS for resident investors on capital gains from mutual funds. (NRIs: see below.) (AMFI India)
NRI corner (at a glance)
- TDS on capital gains: In many cases 20% u/s 196A (or lower DTAA rate), plus cess/surcharge.
- Equity EOF sales: post-23 Jul 2024 STCG 20%, LTCG 12.5% above ₹1.25 lakh; AMCs generally deduct TDS on redemption for NRIs. Check treaty relief. (AMFI India)
Set-off and carry-forward rules
- STCL can be set off against both STCG and LTCG.
- LTCL can be set off only against LTCG.
- Unabsorbed capital loss can be carried forward for 8 AYs (subject to timely ITR filing). (Income Tax India)
Special cases & fine print
- Grandfathering (31 Jan 2018): For equity LTCG where purchase was before 31-01-2018, cost = higher of actual cost and the lower of (i) FMV on 31-01-2018 or (ii) sale price. (AMFI India)
- Switches within a scheme (e.g., Growth → IDCW or Regular → Direct): treated as a sale for tax purposes. (AMFI India)
- STT applicability: on EOF redemptions/sales (not on non-equity funds). (AMFI India)
- Surcharge caps & cess: Levy applies over and above the special rates; cess is 4%. (AMFI India)
Decision grid (featured snippet friendly)
| Fund type | When bought | When sold | Holding period test | Tax rate |
|---|---|---|---|---|
| Equity-oriented MF (≥65% domestic equity) | Any | On/after 23-Jul-2024 | <12m: STCG; ≥12m: LTCG | STCG 20%; LTCG 12.5% on gains >₹1.25L |
| Equity-oriented MF (≥65% domestic equity) | Any | Before 23-Jul-2024 | <12m: STCG; ≥12m: LTCG | STCG 15%; LTCG 10% on gains >₹1L |
| Specified MF (≤35% domestic equity) acquired on/after 1-Apr-2023 | On/after 1-Apr-2023 | Any | Not relevant | Investor’s slab rate (deemed STCG) |
| Non-equity, not covered by 50AA | Any | On/after 23-Jul-2024 | Listed: ≥12m; Unlisted: ≥24m | LTCG 12.5% (no indexation); else slab |
| Legacy debt MF (bought before 1-Apr-2023) | Before 1-Apr-2023 | Before 23-Jul-2024 | ≥36m | LTCG 20% with indexation |
Practical planning ideas (Indian context)
- Time your equity redemptions: Crossing the 12-month mark can cut tax from 20% (STCG) to 12.5% (LTCG above ₹1.25L). (Press Information Bureau)
- Beware of SMFs: Gold, international and many debt funds (purchased on/after 1 Apr 2023) are slab-taxed—use them for short-term parking only if your slab is low. (AMFI India)
- Tax-loss harvesting: Realise losses before year-end to offset gains; remember LTCL cannot offset STCG. (Income Tax India)
- SIPs: Track unit-wise holding periods; a partial redemption may mix STCG and LTCG.
FAQs
Is the LTCG exemption now ₹1.25 lakh for equity MFs?
Yes, for sales on/after 23 Jul 2024; rate is 12.5% on gains above this threshold. Earlier sales had a ₹1 lakh exemption and 10% rate. (Press Information Bureau, AMFI India)
Have rates under 111A/112A definitely changed?
Yes—Government FAQs/notifications confirm STCG 20% (111A) and LTCG 12.5% (112A) for STT-paid equity/equity MFs sold on/after 23 Jul 2024. (Press Information Bureau, eGazette)
What exactly is a “specified mutual fund” today?
Units acquired on/after 1 Apr 2023 of funds with ≤35% domestic equity are deemed STCG at slab; from FY 2025-26 the definition narrows to debt-oriented funds (>65% in debt/money market) and their FoFs. (AMFI India)
Do dividends suffer TDS?
AMCs deduct 10% TDS on dividend payouts over ₹5,000/year to residents. Capital gains for residents generally have no TDS. (AMFI India)
Can I carry forward losses?
Yes—up to 8 assessment years (subject to timely filing). STCL ↔ STCG/LTCG; LTCL → only LTCG. (Income Tax India)
Conclusion
For Indian investors, the post-23 Jul 2024 regime simplifies equity MF taxation (STCG 20%, LTCG 12.5% above ₹1.25L) while SMFs (debt/gold/international) bought on/after 1 Apr 2023 face slab-rate taxation. Use holding periods, loss set-off, and fund selection to optimise your after-tax returns. When in doubt, align redemptions with your slab and cash-flow needs.
Sources for this page: Government FAQs/notifications and AMFI guidance on MF taxation and STT. Key references: new 111A/112A rates and exemption (Govt FAQ & Gazette), Section 50AA treatment for SMFs, and AMFI tax corner for holding periods, TDS, and definitions. (Press Information Bureau, Income Tax India, eGazette, AMFI India)