Mutual Fund Taxation India 2025: Complete LTCG, STCG & New Rules Guide
Complete guide to mutual fund taxation in India after July 2024 budget changes. Understand equity STCG 20%, LTCG 12.5%, debt fund rules, dividend taxation, and tax-saving strategies.
Key Takeaways
- Equity STCG: 20% (holding ≤12 months) - increased from 15%
- Equity LTCG: 12.5% above ₹1.25 lakh annual exemption
- Debt funds (post Apr 2023): Taxed at slab rate, no LTCG benefit
- Hybrid funds (35-65% equity): 24-month holding for LTCG
Mutual Fund Taxation India 2025: Complete Guide
The Union Budget 2024 (announced July 23, 2024) brought significant changes to mutual fund taxation. This comprehensive guide covers all the new rules effective for FY 2025-26.
Key Changes from July 2024 Budget
| Aspect | Before July 2024 | After July 2024 |
|---|---|---|
| Equity STCG | 15% | 20% |
| Equity LTCG | 10% above ₹1L | 12.5% above ₹1.25L |
| Debt Fund LTCG | 20% with indexation | Slab rate (no indexation) |
| Hybrid LTCG period | 36 months | 24 months |
1. Equity-Oriented Mutual Funds (≥65% in Indian Equities)
Includes: Large-cap, mid-cap, small-cap, ELSS, index funds, aggressive hybrid funds, arbitrage funds
Tax Rules (From July 23, 2024):
| Holding Period | Tax Type | Tax Rate | Exemption |
|---|---|---|---|
| ≤12 months | STCG | 20% | None |
| >12 months | LTCG | 12.5% | ₹1.25 lakh/year |
Example - Equity Fund:
- •Investment: ₹10,00,000 in Jan 2024
- •Sold in Feb 2026 (25 months): Value ₹15,00,000
- •Gain: ₹5,00,000 (LTCG)
- •Exemption: ₹1,25,000
- •Taxable: ₹3,75,000
- •Tax: ₹3,75,000 × 12.5% = ₹46,875 (+ cess)
2. Debt-Oriented Mutual Funds (≤35% Equity)
Includes: Liquid funds, overnight funds, money market, gilt funds, corporate bond funds, banking & PSU funds
Critical Rule Change:
| Purchase Date | Tax Treatment |
|---|---|
| Before April 1, 2023 | LTCG @12.5% after 24 months (no indexation) |
| On/After April 1, 2023 | Always taxed at slab rate (no LTCG benefit) |
Example - Debt Fund (Bought May 2023):
- •Investment: ₹20,00,000
- •Sold after 3 years: Value ₹26,00,000
- •Gain: ₹6,00,000
- •Tax (30% slab): ₹1,80,000 (+ cess)
Impact: Debt funds are now less tax-efficient for high-income investors compared to equity or direct bonds.
3. Hybrid Mutual Funds (35-65% Equity)
Includes: Balanced hybrid, multi-asset allocation, conservative hybrid funds
Tax Rules:
| Holding Period | Tax Type | Tax Rate |
|---|---|---|
| ≤24 months | STCG | Slab rate |
| >24 months | LTCG | 12.5% (no indexation) |
4. International Funds, Gold Funds & Fund of Funds
Tax Treatment (Post April 2023):
- •All gains taxed at slab rate
- •No LTCG benefit regardless of holding period
- •Same as debt funds
Dividend Taxation
Important: Dividends are NOT tax-free anymore (since April 2020)
| Aspect | Tax Treatment |
|---|---|
| Tax Rate | Added to income, taxed at slab rate |
| TDS | 10% if dividend >₹5,000/year from one AMC |
| NAV Impact | NAV reduces by dividend amount |
Recommendation: Prefer Growth option over Dividend option for tax efficiency.
Tax-Loss Harvesting & Set-Off Rules
Setting Off Losses:
| Loss Type | Can Set Off Against |
|---|---|
| STCL (Equity) | STCG + LTCG (any asset) |
| LTCL (Equity) | LTCG only (any asset) |
| STCL (Debt) | STCG + LTCG (any asset) |
Carry Forward: Unabsorbed losses can be carried forward for 8 years
Example:
- •Equity Fund A: LTCG ₹2,00,000
- •Equity Fund B: LTCL ₹80,000
- •Net taxable LTCG: ₹1,20,000
- •After ₹1.25L exemption: ₹0 tax
Quick Reference: MF Taxation Summary
| Fund Type | STCG Period | STCG Rate | LTCG Period | LTCG Rate |
|---|---|---|---|---|
| Equity (≥65%) | ≤12 months | 20% | >12 months | 12.5%* |
| Debt (≤35%) | Any | Slab | Any | Slab |
| Hybrid (35-65%) | ≤24 months | Slab | >24 months | 12.5% |
| International | Any | Slab | Any | Slab |
| Gold/FoF | Any | Slab | Any | Slab |
*₹1.25 lakh annual exemption across all equity investments
Tax-Saving Strategies
1. LTCG Harvesting
- •Book profits up to ₹1.25 lakh annually (tax-free)
- •Reinvest immediately to reset cost basis
- •Save ₹15,625 in tax every year
2. Hold Equity Funds >12 Months
- •STCG: 20% vs LTCG: 12.5%
- •Difference of 7.5% on gains
3. Use SWP for Regular Income
- •Systematic Withdrawal Plan
- •Only gains portion taxed, not principal
- •More tax-efficient than dividends
4. ELSS for Section 80C
- •₹1.5 lakh deduction under 80C
- •3-year lock-in (shortest among 80C options)
- •Equity taxation applies
5. Avoid Debt Funds for High Tax Brackets
- •Consider direct bonds, SGBs, or arbitrage funds
- •Arbitrage funds get equity taxation (65%+ in arbitrage)
NRI Taxation on Mutual Funds
| Fund Type | STCG TDS | LTCG TDS |
|---|---|---|
| Equity | 20% + surcharge | 12.5% + surcharge |
| Debt | 30% + surcharge | 30% + surcharge |
NRIs can claim refund if actual tax liability is lower.
Reporting in ITR
Schedule CG (Capital Gains):
- •Report all redemptions
- •Separate sections for STCG and LTCG
- •Equity gains under Section 111A (STCG) and 112A (LTCG)
Documents Needed:
- •Capital Gains Statement from AMC
- •Consolidated Account Statement (CAS)
- •Transaction history
Frequently Asked Questions
Q: Is SIP taxed differently? A: Each SIP installment is treated as a separate purchase. FIFO (First In First Out) method applies for redemption.
Q: Are switch transactions taxable? A: Yes, switching between funds is a redemption + purchase, triggering capital gains tax.
Q: What about bonus units? A: Bonus units have zero cost. Full sale value is capital gain.
Q: How to calculate gains for SIP? A: Use FIFO method - oldest units sold first. Each unit has its own purchase date and cost.
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