Capital gains tax on mutual funds — STCG and LTCG rates

Which law applies

The Income-tax Act, 2025 replaced the Income-tax Act, 1961 with effect from 1 April 2026 and is the Act in force. It renumbered provisions but did not change the mutual fund capital-gains rates, which come from the Finance (No. 2) Act 2024 and applied to transfers on or after 23 July 2024. Anything you read that cites the 1961 Act as current law is out of date, and any section number quoted against it needs re-checking before you rely on it. Where we could not confirm the 2025 Act's numbering for a provision, this page describes the provision rather than printing a number we cannot verify.

The current rate card

• Equity-oriented funds (at least 65% in Indian equity): held twelve months or less — 20%. Held over twelve months — 12.5% on gains above ₹1.25 lakh per investor per year.
• Debt-oriented funds: gains taxed at your slab rate with no indexation, regardless of holding period. Units bought before 1 April 2023 fall under the earlier regime.
• Hybrid funds: follow their actual allocation. A fund with at least 65% equity is treated as equity-oriented; one at the conservative end is treated as debt.
• International funds, gold and silver ETFs, and fund-of-funds: the rule changed, and older explainers on the internet are wrong about this. The definition of a "specified mutual fund" — the category that attracts slab-rate taxation with no long-term treatment — was amended to mean a fund investing more than 65% in debt and money-market instruments, or a fund investing at least 65% in units of such a fund. The effect is that overseas-equity fund-of-funds and gold and silver ETFs are no longer automatically caught by it, and units held beyond 24 months can qualify for long-term treatment at 12.5%. The amendment applies from financial year 2025-26 onwards. This one is genuinely worth confirming with a CA against your own holdings before you act on it.

FIFO on SIP units

For a SIP, every instalment is a separate unit-parcel with its own acquisition date. When you redeem, the oldest units are sold first. This affects your tax bill because:

• The first units sold are most likely >12 months old (LTCG) and have the largest gain (assuming markets rose). They use up your ₹1.25L LTCG exemption fastest.
• The newer units (<12 months) are sold last in a partial redemption. If markets are flat or down, they may show losses — usable to offset gains.

Worked example

Ravi ran a ₹10,000 monthly equity SIP for 5 years (60 instalments, total invested ₹6 lakh). At year 5, NAV has appreciated; the corpus is ₹9 lakh (gain ₹3 lakh). He redeems ₹4.5 lakh (half). FIFO sells the oldest 30 instalments. Of these, all are >12 months old (LTCG). The gain on those 30 instalments works out to roughly ₹1.7 lakh. ₹1.25 lakh is tax-free; ₹45,000 is taxed at 12.5% = ₹5,625. Effective tax rate on the ₹4.5L redemption: roughly 1.25%.

Loss harvesting

Short-term losses can be set off against any capital gain (short or long). Long-term losses can be set off only against LTCG. Unutilised losses can be carried forward for 8 years. We don't auto-harvest losses — this is one place where a tax advisor / a Quicko-style filing tool adds real value.

How we got here — the dated trail

• 1 April 2023 (Finance Act 2023): debt funds lost indexation; gains taxed at slab rate.
• 23 July 2024 (Finance (No. 2) Act 2024): equity short-term rate up from 15% to 20%; equity long-term up from 10% to 12.5%; the annual long-term exemption raised from ₹1 lakh to ₹1.25 lakh.
• Financial year 2025-26: the "specified mutual fund" definition narrowed to debt-and-money-market funds and funds-of-funds investing in them, taking overseas-equity fund-of-funds and gold and silver ETFs out of the automatic slab-rate category.
• 1 April 2026: the Income-tax Act, 2025 came into force, replacing the 1961 Act. Provisions were renumbered; the rates above were not changed.

What to do at filing time

Get an RTA-sourced capital gains statement (CAMS, KFin) — not just our internal P&L summary. The RTA statement is what the AO reconciles against. We'll surface a CAS-format statement in the dashboard under Statements once your KYC is live. For complex situations (NRI tax, MLD, REIT), use a CA.