How mutual-fund gains are taxed: the basics
The two things that decide mutual-fund tax — the type of fund and how long the units were held.
General educational information on Indian mutual-fund taxation — not tax or investment advice. Tax rules and figures change and depend on your individual circumstances; consult a qualified professional before acting on any of this.
Not tax or investment advice.
Two questions decide the tax
For any mutual-fund redemption, the tax treatment follows from two facts:
- What type of fund is it? Tax law splits funds into equity-oriented (at least 65% in domestic equity) and other / specified funds (such as most debt funds).
- How long were the units held? This sets whether a gain is short-term or long-term, and the holding-period threshold differs by fund type.
Equity-oriented funds (FY 2025-26)
- Held 12 months or less: short-term, taxed at 20%.
- Held more than 12 months: long-term, taxed at 12.5% on gains above ₹1.25 lakh in the financial year.
Specified / debt funds
For units acquired on or after 1 April 2023, the whole gain is taxed at the investor's income-tax slab rate, regardless of holding period.
Hybrid funds
A hybrid scheme is taxed by its equity content: 65% or more in domestic equity is taxed like an equity fund; a debt-oriented hybrid (over 65% in debt/money-market) is taxed at slab rates as a specified fund; a fund in between follows the residual capital-gains rules.
This overview is general and applies to FY 2025-26; see the linked topics for detail.