How mutual funds are taxed in India
When you redeem mutual fund units, the profit is a capital gain. How much tax you pay depends on three things: the type of fund, how long you held the units, and, for some funds, your income tax slab. These are the rules for redemptions in FY 2026-27.
The rules at a glance
| Fund type | Long-term after | Short-term tax | Long-term tax |
|---|---|---|---|
| Equity funds 65%+ in Indian stocks, incl. ELSS, index funds, equity ETFs, arbitrage and aggressive hybrid | 12 months | 20% | 12.5% above ₹1.25 lakh a year |
| Debt funds 65%+ in debt, incl. liquid, gilt and corporate bond funds | Never, if bought on or after 1 Apr 2023 | Slab rate | Slab rate (12.5% after 24 months if bought before 1 Apr 2023) |
| Hybrid, gold, silver and international funds Incl. balanced advantage, multi-asset and fund of funds | 24 months | Slab rate | 12.5% |
| Listed gold, silver and international ETFs | 12 months | Slab rate | 12.5% |
All rates are before the 4% health and education cess, which the calculator adds. Surcharge applies only at higher incomes and is not included.
Tips to reduce the tax
- Wait for long-term status. On equity funds, selling a day after the 12-month mark can cut the rate from 20% to 12.5%.
- Use the ₹1.25 lakh exemption every year. Booking equity gains up to this limit each financial year, and reinvesting, is known as tax harvesting.
- Set off losses. Short-term losses can reduce any capital gain. Long-term losses can only reduce long-term gains. Unused losses carry forward for 8 years if you file your return on time.
Frequently asked questions
How is LTCG on equity mutual funds taxed?
Gains on equity funds held for more than 12 months are long-term. They are taxed at 12.5%, and the first ₹1.25 lakh of long-term gains from equity each financial year is tax-free.
How is STCG on equity mutual funds taxed?
Gains on equity funds sold within 12 months are short-term and taxed at a flat 20%, plus 4% cess. There is no exemption.
How are debt mutual funds taxed?
Debt funds bought on or after 1 April 2023 are taxed at your income tax slab rate, however long you hold them. Units bought before that date are long-term after 24 months and taxed at 12.5%.
How are gold and international funds taxed?
Gold, silver and international funds of funds, and hybrid funds that are not equity-oriented, are long-term after 24 months and taxed at 12.5%. Listed ETFs of these assets are long-term after 12 months. Short-term gains are taxed at your slab rate.
How is tax calculated on SIP redemptions?
Each SIP instalment is a separate purchase with its own holding period. Units are redeemed first-in, first-out, so your oldest units are sold first. Calculate each instalment separately, or use your fund house’s capital gains statement.
Is there TDS on mutual fund redemptions?
No TDS is deducted for resident individuals. For NRIs, the fund house deducts TDS at the applicable capital gains rate.