Equity mutual funds: STCG 20% (if held <12 months) and LTCG 12.5% on gains above ₹1.25 lakh (if held ≥12 months). “Specified” debt-oriented funds (incl. most gold/intl. FoFs) bought on/after 1 Apr 2023: gains are taxed at your slab rate regardless of holding. Dividends are taxed at slab; AMCs deduct 10% TDS if total dividends exceed ₹5,000 in a FY. (AMFI India)
Why this matters
Tax rules changed in July 2024, altering rates and exemptions for equity funds, and Budget 2023 created a new “specified mutual fund” bucket that taxes many non-equity funds at slab rates. Knowing which bucket your scheme falls into helps you plan exits, SIP holding periods, and cash flows. (India Budget, Press Information Bureau)
The framework: three buckets
1) Equity-oriented mutual funds (EOFs)
A scheme qualifies as equity-oriented when it invests ≥65% in equity shares of domestic companies (certain FoF structures can also qualify—see note under “special cases”). (AMFI India)
Tax on capital gains (units sold):
- Short-term (STCG): Units held <12 months → 20% for sales on/after 23 Jul 2024; 15% for sales before that date. (AMFI India)
- Long-term (LTCG): Units held ≥12 months → 12.5% on gains exceeding ₹1.25 lakh per FY for sales on/after 23 Jul 2024; 10% above ₹1 lakh for sales before that date. No indexation. Securities Transaction Tax (STT) must be paid. (AMFI India, Press Information Bureau)
STT: 0.001% on redemption/sale of equity fund units; applies to equity ETFs too. (AMFI India)
Example:
Invest ₹5,00,000 in a Nifty 50 index fund, hold 18 months, realise ₹80,000 gain in FY 2024–25. Since LTCG exemption is ₹1.25 lakh, tax on equity LTCG here is ₹0 (surcharge/cess ignored for simplicity). (Press Information Bureau)
2) “Specified mutual funds” (Debt-oriented; incl. many Gold/International FoFs)
Section 50AA deems all gains on specified MFs acquired on/after 1 Apr 2023 as short-term—taxed at your slab rate, irrespective of holding period. For FY 2024–25, a “specified MF” broadly includes funds with ≤35% domestic equity (e.g., most gold funds, international FoFs, bond funds, liquid/money market funds). From FY 2025–26, the law narrows the definition to debt-oriented schemes (≥65% in debt/money-market or FoFs into such funds). (AMFI India)
Implications:
- New purchases (1 Apr 2023 onwards): Slab-rate tax on redemption gains (no LTCG rate/indexation).
- Legacy holdings (before 1 Apr 2023): older rules may apply; if sold on/after 23 Jul 2024, long-term gains (where applicable) are taxed at 12.5% without indexation under section 112; holding-period tests depend on whether units are listed/unlisted (see bucket 3). (AMFI India)
3) “Other mutual funds” (non-equity, non-specified)
For schemes that are neither equity-oriented nor “specified” under §50AA, the holding period and rates follow section 112 for long-term gains:
- Holding period to qualify as LTCG:
- Sales on/after 23 Jul 2024: >12 months (if units are listed) or >24 months (if unlisted).
- Sales before 23 Jul 2024: >36 months. (AMFI India)
- LTCG rate (other than section 112A equity): 12.5% without indexation for sales on/after 23 Jul 2024; earlier, 20% with indexation. (AMFI India)
Dividends from mutual funds (IDCW)
- Tax: Dividends/IDCW are taxed at your slab rate in your hands.
- TDS (residents): 10% u/s 194K if total mutual fund dividends exceed ₹5,000 in a FY; no TDS on capital gains for residents. (NRIs face TDS on capital gains/dividends as per sections 195/196A.) (AMFI India)
What qualifies as “equity-oriented” in edge cases?
- Arbitrage/Equity Savings/Balanced Advantage: Most maintain effective equity ≥65% (including hedged positions) to get equity tax treatment. Check each scheme’s portfolio disclosures. (AMFI India)
- FoFs/ETFs: Equity ETFs/index funds are equity-oriented. Gold funds, international FoFs, bond ETFs are not—many fall into the “specified” slab-tax bucket for new purchases. (AMFI India)
Practical rules of thumb (India-centric)
- SIP taxation: Each SIP installment has its own purchase date → its own 12-month (equity) or applicable holding clock.
- Switch = sell + buy: Switching between options/schemes triggers capital gains on the units you exit. (AMFI India)
- Set-off: Short-term losses can offset any capital gains; long-term losses can offset long-term gains only. Carry forward 8 years (subject to return filing on time).
- Exit loads ≠ taxes: Exit load reduces sale proceeds; tax is computed on net consideration.
- STT is tiny but real: For equity-oriented funds, expect 0.001% STT on redemption or sale. (AMFI India)
Quick reference table (FY 2024–25 rules)
| Fund Type | When is LTCG? | LTCG Tax | STCG Tax |
|---|---|---|---|
| Equity-oriented (≥65% domestic equity) | ≥12 months | 12.5% over ₹1.25 lakh (sales on/after 23-Jul-2024); else 10% over ₹1 lakh | 20% (sales on/after 23-Jul-2024); else 15% |
| Specified MF (purchased on/after 1-Apr-2023) | Not applicable (all ST) | — | Slab rate |
| Other non-equity MFs | Listed: >12m; Unlisted: >24m (for sales on/after 23-Jul-2024) | 12.5% (no indexation) | Slab rate |
Sources: AMFI Tax Corner; PIB/Finance (No.2) Act, 2024 for rate/exemption changes. (AMFI India, Press Information Bureau, India Budget)
Worked examples
A) Equity index fund (resident individual)
- Buy: ₹2,00,000 (Aug 2023). Sell: ₹3,00,000 (Sep 2024). Gain = ₹1,00,000 → LTCG, but below ₹1.25 lakh exemption → No tax (STT applies). (Press Information Bureau)
B) Gold fund (purchased May 2024)
- Buy: ₹3,00,000. Sell: ₹3,45,000 (Dec 2025). Gain = ₹45,000 → Specified MF (post-Apr 2023) → Tax at slab (no LTCG concession), irrespective of 19-month holding. (AMFI India)
C) Corporate bond fund (units bought Mar 2022)
- If sold after 23 Jul 2024 and qualifies under “other MFs” (not “specified” for acquisition date): long-term gains taxed at 12.5% without indexation; holding-period test uses 12/24 months (listed/unlisted) from the new regime. (AMFI India)
FAQs
Do residents pay TDS on redemption gains?
No. Residents have no TDS on capital gains from MFs; TDS applies only to dividends over ₹5,000 (10% u/s 194K). NRIs face TDS on both dividends and capital gains. (AMFI India)
Does the ₹1.25 lakh exemption apply per fund?
No. It’s an aggregate exemption across listed equity & equity MF LTCG in the financial year. (Press Information Bureau)
Are SIP redemptions FIFO?
AMCs typically apply FIFO for unit accounting—your oldest units are treated as sold first.
What about surcharge & cess?
Add applicable surcharge (capped at 15% for sections 111A/112/112A) and 4% health & education cess. (AMFI India)
Key takeaways for Indian investors
- For growth-oriented equity funds, the ₹1.25 lakh annual LTCG cushion is valuable—plan redemptions across FYs to use it efficiently. (Press Information Bureau)
- For debt/gold/international FoFs purchased post-Apr 2023, assume slab-rate taxation—use SWPs for cash flows and compare post-tax returns vs FDs. (AMFI India)
- Always check your scheme’s equity % and whether it’s “specified” under §50AA, especially in hybrid/FoF categories. (AMFI India)
Internal reads from Endovia Wealth
- What is an ELSS Fund?
- Debt Funds vs Equity Funds: Which is Safer?
- How to Read a Mutual Fund Factsheet
- Capital Gains Tax on Mutual Funds (deep dive)
Disclaimer: This is a general update. Tax results vary by scheme structure, dates of purchase/sale, and your tax slab/residency. Please consult your tax advisor for personalised guidance.