worldofcalcsCapital Gains Tax on Mutual Funds in India (FY 2026-27)
When you sell (redeem) mutual fund units for more than you paid, the profit is a capital gain. The tax depends on two things: what kind of fund it is, and how long you held the units.
The rates below apply to sales made on or after 23 July 2024, and they continue for tax year 2026-27.
Equity mutual funds
These are funds that keep at least 65% in Indian shares. That includes large-cap, mid-cap, small-cap, flexi-cap, index funds, ELSS, and most arbitrage and aggressive hybrid funds.
| Held for | Type | Tax |
|---|---|---|
| 12 months or less | Short-term (STCG) | 20% |
| More than 12 months | Long-term (LTCG) | 12.5% on gains above ₹1.25 lakh a year |
The ₹1.25 lakh exemption is per person per year, across all your equity funds and listed shares combined. Add 4% cess to the tax.
Example 1: long-term equity gain
You invested ₹5,00,000 in January 2024 and redeem for ₹8,00,000 in October 2026.
- Gain: ₹3,00,000, held more than 12 months, so it's long-term.
- Exempt: ₹1,25,000. Taxable: ₹1,75,000.
- Tax: 12.5% of ₹1,75,000 = ₹21,875, plus 4% cess = ₹22,750.
Example 2: short-term equity gain
You invested ₹5,00,000 in January 2026 and redeem for ₹6,00,000 in October 2026.
- Gain: ₹1,00,000, held less than 12 months, so it's short-term.
- Tax: 20% of ₹1,00,000 = ₹20,000, plus cess = ₹20,800.
Debt mutual funds
The date you bought the units decides the tax.
Bought on or after 1 April 2023. Funds with 35% or less in equity, including liquid, money market, gilt, corporate bond and most debt funds:
- All gains are taxed at your income tax slab rate, however long you hold.
- There's no long-term benefit and no indexation.
Bought before 1 April 2023:
| Held for | Tax |
|---|---|
| 24 months or less | Your slab rate |
| More than 24 months | 12.5%, without indexation |
Example 3: debt fund gain
You invested ₹5,00,000 and redeem for ₹6,00,000, a ₹1,00,000 gain, in the 30% slab.
- Bought in June 2023: taxed at slab, 30% + cess = ₹31,200.
- Bought in June 2022: held over 24 months, so long-term at 12.5% + cess = ₹13,000.
Hybrid and other funds
- Over 65% in Indian equity (aggressive hybrid, arbitrage, most balanced advantage funds): taxed like equity funds.
- Between 35% and 65% in equity (some balanced and multi-asset funds): short-term if held 24 months or less, taxed at your slab rate. Long-term after that, taxed at 12.5%.
- 35% or less in equity, bought on or after 1 April 2023: taxed like debt funds, at your slab rate.
International funds and fund-of-funds have their own rules. Check the fund's tax note in its factsheet.
Ways to legally reduce the tax
- Harvest the ₹1.25 lakh exemption every year. If you have unrealised long-term equity gains, sell enough to book about ₹1.25 lakh of gain each year and reinvest straight away. Your purchase price resets higher, so you pay less tax when you finally sell.
- Wait past 12 months. Selling an equity fund at 11 months costs 20%; waiting a few weeks drops it to 12.5%, with the first ₹1.25 lakh tax-free.
- Offset losses. Short-term capital losses can be set off against both short- and long-term gains. Long-term losses only against long-term gains. Unused losses carry forward for 8 years if you file your return on time.
- Use SWP rather than one big sale. Spreading redemptions across years lets you use the exemption more than once.
- Mind the rebate trap. The new regime's rebate, which makes income up to ₹12 lakh tax-free, doesn't cover tax on gains taxed at special rates (the 12.5% and 20% equity rates). You can owe tax on fund gains even when your total income is under ₹12 lakh.
Older investments
Grandfathering: for equity units bought before 1 February 2018, the purchase price can be taken as the higher of the actual cost and the NAV on 31 January 2018 (capped at the sale price). Gains made before that date stay tax-free.
Work out your tax
Enter your purchase and sale dates and amounts in the capital gains calculator. It applies the right holding period, rate, exemption and cess for equity funds, debt funds, property and gold. To plan regular redemptions, see the SWP calculator.
This guide covers resident individuals. Surcharge (capped at 15% on these gains), non-resident rules and STT details are not covered; consult a tax professional for large transactions.