How equity mutual funds are taxed
Holding periods, short-term vs long-term gains, and the ₹1.25 lakh LTCG exemption for equity-oriented funds.
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.
What counts as an equity fund
A scheme is equity-oriented for tax purposes when it invests at least 65% of its assets in domestic equity shares.
Holding period
- Short-term: units held for 12 months or less.
- Long-term: units held for more than 12 months.
Rates (FY 2025-26)
- Short-term capital gains (STCG) on equity-oriented funds are taxed at 20% under Section 111A.
- Long-term capital gains (LTCG) are taxed at 12.5% under Section 112A, on gains above ₹1.25 lakh in a financial year. The first ₹1.25 lakh of long-term gains in the year is exempt, and indexation does not apply.
Worked illustration
If long-term gains in the year total ₹1.75 lakh, the first ₹1.25 lakh is exempt and the remaining ₹50,000 is taxed at 12.5% (₹6,250), plus any applicable surcharge and cess. This illustration is general; actual tax depends on the full return.
These figures apply to FY 2025-26 and change from year to year.