Quick answer: For equity mutual funds, gains on units held over 12 months are long-term capital gains (LTCG). The first ₹1.25 lakh a year is tax-free and the rest is taxed at 12.5%. Gains on units held 12 months or less are taxed at 20% (STCG). Debt funds bought on or after 1 April 2023 are taxed at your income slab rate, whatever the holding period. Budget 2026 left these rates unchanged.
Rates for FY 2026-27, plus 4% health and education cess and surcharge where applicable. The new Income-tax Act, 2025, which took effect on 1 April 2026, carries these rates forward. Section numbers have changed, so check the current reference when filing.
Mutual fund capital gains tax: the full table
| Fund type | Short-term | STCG tax | Long-term | LTCG tax |
|---|---|---|---|---|
| Equity funds and equity-oriented hybrids (≥65% equity) | ≤ 12 months | 20% | > 12 months | 12.5% on gains above ₹1.25 lakh a year |
| Debt funds bought on/after 1 Apr 2023 | Any period | Slab rate | No LTCG | Slab rate |
| Debt funds bought before 1 Apr 2023 | ≤ 24 months | Slab rate | > 24 months | 12.5% (no indexation) |
| Hybrid funds with 35–65% equity, gold funds of funds, international FoFs | ≤ 24 months | Slab rate | > 24 months | 12.5% |
| Gold / silver ETFs (listed) | ≤ 12 months | Slab rate | > 12 months | 12.5% |
The classification of hybrid and fund-of-fund schemes depends on each scheme’s portfolio. Check the scheme document or ask your AMC how a specific fund is taxed.
Worked examples
Example 1: equity fund, long term Rohan invested ₹5 lakh as a lump sum in a flexi cap fund in June 2023 and redeems it for ₹8 lakh in November 2026. – Gain: ₹3,00,000 (held over 12 months, so LTCG) – Exempt: ₹1,25,000 – Taxable: ₹1,75,000 × 12.5% = ₹21,875, plus 4% cess = ₹22,750
Example 2: equity fund, short term Priya sells units 8 months after buying, with a gain of ₹40,000. – STCG at 20% = ₹8,000, plus cess = ₹8,320 – The ₹1.25 lakh exemption doesn’t apply to short-term gains.
Example 3: debt fund bought in 2024 Amit, in the 30% slab, redeems a debt fund with a ₹50,000 gain. – Taxed at slab: ₹15,000, plus cess = ₹15,600 – No LTCG benefit, however long he held it.
How SIP units are taxed: first in, first out
Every SIP instalment is a separate purchase with its own holding period. When you redeem, the oldest units are sold first (FIFO).
So if you’ve run a SIP for 18 months and redeem everything, the first 6 instalments are long-term and the last 12 are short-term (20% on their gains). If you only need part of the money, redeeming just the older units keeps the whole gain long-term.
Tax harvesting: use the ₹1.25 lakh every year
The ₹1.25 lakh exemption is per person, per financial year, and you can’t carry it forward. A simple habit:
- Each February or March, check your unrealised long-term equity gains.
- Redeem enough units to book up to ₹1.25 lakh of LTCG.
- Reinvest straight away (in the same or a similar fund).
You pay zero tax, and your purchase cost is reset higher, so future taxable gains are smaller. Over 15–20 years this can save a meaningful amount. (Check exit loads first, and remember the reinvested units start a new 12-month clock.)
Married? Each spouse gets their own ₹1.25 lakh if the investments are genuinely in each person’s name with their own money.
Grandfathering for pre-2018 equity investments
For equity units bought before 1 February 2018, the cost for LTCG purposes is the higher of your actual purchase price or the NAV on 31 January 2018 (capped at the sale price). Your capital gains statement from CAMS/KFintech does this calculation for you.
Is there TDS on mutual fund redemptions?
For resident individuals, no TDS is deducted on capital gains from mutual fund redemptions. You report and pay the tax yourself through advance tax or when filing your ITR. (Dividend/IDCW payouts above a threshold do attract TDS.)
How to report mutual fund gains in your ITR
Download a capital gains statement from CAMS and KFintech (or MF Central) for the financial year. It splits short-term and long-term gains for each scheme. We walk through the exact ITR schedules in Mutual Fund Redemption and ITR Filing.
Frequently Asked Question
What is the LTCG tax rate on equity mutual funds in 2026?
12.5% on long-term gains above ₹1.25 lakh per financial year, for units held over 12 months. Budget 2026 didn’t change this.
Do I pay tax on SIP redemption?
Yes, on the gains. Each SIP instalment has its own holding period, and units are redeemed first-in, first-out.
Are debt mutual funds taxed at slab rate?
Yes, for units bought on or after 1 April 2023, whatever the holding period. Older units held over 24 months get 12.5% LTCG.
Is switching between funds taxable?
Can I set off mutual fund 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 can be carried forward for 8 years if you file your return on time.
Mutual fund investments are subject to market risks. Read all scheme-related documents carefully. RingMoney is an AMFI-registered mutual fund distributor (ARN-320453). Tax rules as of October 2026. This article is general information, not tax advice; consult a Chartered Accountant for your situation.
Related reading: Mutual Fund Taxation in India · ELSS vs PPF vs NPS · Inherited Mutual Funds
