Capital gains and investments · Tax Year 2025-26
Tax on mutual fund redemptions
Tax on a mutual fund sale depends on the type of fund and how long you held it. Equity funds: 20% on short-term gains and 12.5% on long-term gains above ₹1,25,000. Debt funds bought on or after 1 April 2023 are taxed at your slab rate.
On this page
How a mutual fund redemption is taxed depends on two things: the type of fund and how long you held the units. On the rules for the tax year 2025-26, equity-oriented funds are taxed at 20% on short-term gains and 12.5% on long-term gains above ₹1,25,000 in the year. Debt funds bought on or after 1 April 2023 are treated as short-term and taxed at your slab rate.
The figures are for transfers on or after 23 July 2024, which covers all of tax year 2025-26. They are signed off in TaxCare's rules on the basis described there. For 2026-27 the same figures are carried forward provisionally.
Holding periods
Type of unit | Long-term if held for more than |
|---|---|
Equity-oriented fund units (and listed shares) | 12 months |
Other units, such as debt funds bought before 1 April 2023 | 24 months |
Specified mutual fund units bought on or after 1 April 2023 | Never: always short-term |
Tax rates
Gain | Tax rate |
|---|---|
Equity fund, short-term (section 111A) | 20% |
Equity fund, long-term (section 112A) | 12.5% on gains above ₹1,25,000 in the year |
Debt fund bought on or after 1 April 2023 (section 50AA) | Your slab rate |
Other fund units, long-term (section 112) | 12.5%, without indexation |
Health and education cess | 4% on the tax |
Debt fund units bought before 1 April 2023 and held for more than 24 months give a long-term gain under section 112, taxed at 12.5% without indexation for transfers on or after 23 July 2024. Indexation survives only for land and buildings, not for fund units.
Long-term capital gains on equity funds up to ₹1,25,000 in a year are exempt. The exemption is applied to the total long-term gain of the year across all your funds and shares, not per fund.
Worked examples
Example 1: long-term equity gain. You redeem equity fund units held for 3 years and make a gain of ₹3,00,000. The exempt part is ₹1,25,000. Taxable gain is ₹1,75,000. Tax at 12.5% is ₹21,875, plus 4% cess: ₹22,750.
Example 2: short-term equity gain. You redeem units held for 8 months with a gain of ₹50,000. Tax at 20% is ₹10,000, plus cess: ₹10,400.
Example 3: debt fund bought in 2024. Gain ₹1,00,000. It is added to your income and taxed at your slab rate. With a salary of ₹8,00,000 in the old regime, the gain falls in the 20% band: ₹20,000 plus cess, ₹20,800. In the new regime the same person pays nil, because the total income stays within the section 87A rebate.
Examples 1 and 2 assume your other income already uses up the basic exemption limit. All three were worked out with TaxCare's tax engine and are the same for the tax years 2025-26 and 2026-27.
Grandfathering for old equity holdings
For equity units bought before 1 February 2018, the cost for long-term gains is the higher of the actual cost and the lower of the fair market value on 31 January 2018 and the sale value.
The rebate does not cover these gains in the new regime
In the new regime, the section 87A rebate does not apply to special-rate gains. See rebate under section 87A.
Which ITR form
Long-term gains on listed equity and equity funds up to ₹1,25,000 can stay in ITR-1 if nothing else rules it out. Larger gains, short-term gains or debt fund gains need ITR-2 (or ITR-3 if you also have business income). See which ITR form should I file.
Records to keep
- Contract notes or account statements showing purchase and redemption dates and prices
- A capital gains statement from the fund house or registrar
- Your AIS, which lists mutual fund transactions reported against your PAN. See what is AIS.
Dividends
Dividends from mutual funds are taxed as income at your slab rate. The fund may deduct TDS on them: under section 194K of the Income-tax Act, 1961, and under section 393(1) [Table: Sl. No. 4(i)] of the Income-tax Act, 2025. The TDS shows in your Form 26AS or Form 168 and your AIS.
How TaxCare helps
TaxCare reads your mutual fund transactions from AIS, sorts each lot into short-term, long-term or deemed short-term, applies the exemption and rates, and keeps special-rate gains out of the rebate where the rules require it. You review the working before you approve. If your gains are complex, a Tax Expert can help. See Tax Experts.
This guide gives general information and is not professional tax advice.
Questions on this topic
How much tax do I pay on equity mutual funds?
On the 2025-26 rules, gains on units held 12 months or less are taxed at 20%. Gains on units held longer are taxed at 12.5% on the part above ₹1,25,000 of long-term gains in the year, plus cess.
Is a debt mutual fund taxed differently?
Debt fund units bought on or after 1 April 2023 are treated as short-term whatever the holding period, so the gain is taxed at your slab rate.
Do I need to file an ITR for mutual fund gains?
Yes, capital gains must be reported. The ITR form depends on the gains. Long-term gains on equity funds up to ₹1,25,000 can stay in ITR-1.
Where do I get my capital gains statement?
From your fund house or registrar, and your AIS shows the transactions reported against your PAN.
Is SIP taxed differently?
Each SIP instalment is a separate purchase with its own date. Holding period and gain are worked out per unit lot.
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