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Understanding the Basics
Understanding the Basics
Investing in equity and mutual funds can be a great way to grow your wealth over the long term. However, it's important to understand the tax implications of these investments. When you sell your investments in listed equities or mutual funds, any profit you make is considered a capital gain. Capital gains are taxed based on the nature of assets you're holding (e.g., stocks, bonds, real estate, gold) and the holding period of your investments.
There are two types of capital gains taxation:
Short-Term Capital Gains (STCG): These are gains from the sale of assets which you hold for a short period, typically less than 24 months for real estate and less than 12 months for stocks and equity oriented mutual funds.
Long-Term Capital Gains (STCG): These are gains from the sale of assets if you hold these for longer periods. For most assets, the holding period is more than 12 months, but for some other asset types, it can be even 24 or 36 months.
Income tax rates for various asset classes (FY 2024 - 25)
Income tax rates for various asset classes (FY 2024 - 25)
Indian Mutual Funds
Indian Mutual Funds
Equity Oriented MFs, Equity ETFs (>=65% Indian Equity), Equity FOFs
Equity Oriented MFs, Equity ETFs (>=65% Indian Equity), Equity FOFs
Holding period to qualify for long term > 12 months
Short term tax rates: 20%
Long term tax rate: 12.5%
Hybrid MFs (>35% and <65% Indian Equity)
Hybrid MFs (>35% and <65% Indian Equity)
1) Redeemed between 1stApril 2024 and 22ndJuly 2024
Holding period to qualify for long term > 36 months
Short term tax rates: Slab rate
Long term tax rate: 20%
2) Redeemed between 1stApril 2024 and 22ndJuly 2024
Holding period to qualify for long term > 24 months
Short term tax rates: Slab rate
Long term tax rate: 12.5%
Other MFs (International Equity/ Gold/ Silver/ other funds/ FoFs)
Other MFs (International Equity/ Gold/ Silver/ other funds/ FoFs)
1) If acquired prior to 1st April 2023
1.a. If redeemed between 1st April 2024 and 22nd July 2024
Holding period to qualify for long term > 36 months
Short term tax rates: Slab rate
Long term tax rate: 20%
1.b. If redeemed on or after 23rd July 2024
Holding period to qualify for long term > 24 months
(>12 months for ETF)
Short term tax rates: Slab rate
Long term tax rate: 12.5%
2) If acquired post 1st April 2023
2.a. If redeemed between 1st April 2024 and 31st March 2025
Holding period to qualify for long term: Deemed Short term
Short term tax rates: N/A
Long term tax rate: Slab rate
2.b. If redeemed on or after 1st April 2025
Holding period to qualify for long term > 24 months
(>12 months for ETF)
Short term tax rates: Slab rate
Long term tax rate: 12.5%
Debt Mutual Funds
Debt Mutual Funds
1) If acquired prior to 1st April 2023
1.a. If redeemed between 1st April 2024 and 22nd July 2024
Holding period to qualify for long term > 36 months
Short term tax rates: Slab rate
Long term tax rate: 20%
1.b. If redeemed on or after 23rd July 2024
Holding period to qualify for long term > 24 months
(12 months for ETF)
Short term tax rates: Slab rate
Long term tax rate: 12.5%
2) If acquired post 1st April 2023 and redeemed up to 31 March 2025
Holding period to qualify for long term: Deemed short term
Short term tax rates: Slab rate
Long term tax rate: N/A
Listed Indian Securities (Excluding Mutual Funds)
Listed Indian Securities (Excluding Mutual Funds)
Equity Shares and Securities
Equity Shares and Securities
Holding period to qualify for long term
>12 months
Short term tax rates: 20%
Long term tax rate: 12.5%
Sale of Bonds/Debentures
Sale of Bonds/Debentures
Holding period to qualify for long term
>12 months
Short term tax rates: Slab rate
Long term tax rate: 12.5%
REITs/ InvITs
REITs/ InvITs
Holding period to qualify for long term
>12 months
Short term tax rates: 20%
Long term tax rate: 12.5%
Other Asset Classes
Other Asset Classes
Real Estate, Gold, Art, Silver, all Foreign Assets including International Funds
Real Estate, Gold, Art, Silver, all Foreign Assets including International Funds
Holding period to qualify for long term >24 months
Short term tax rates: Slab rate
Long term tax rate: 12.5%
Frequently Asked Questions
Frequently Asked Questions
Are there any tax benefits for investing in mutual funds?
Are there any tax benefits for investing in mutual funds?
Yes, you can claim tax deductions under Section 80C for investments in equity-linked savings schemes (ELSS).
How do I calculate capital gains on mutual fund investments?
How do I calculate capital gains on mutual fund investments?
You can calculate capital gains by subtracting the purchase price from the sale price. For long-term capital gains on debt funds, you need to adjust the purchase price for inflation using the indexation benefit.
What is the tax treatment of Systematic Investment Plans (SIPs)?
What is the tax treatment of Systematic Investment Plans (SIPs)?
SIP investments in equity funds are treated similarly to lump-sum investments for tax purposes. Each SIP installment is treated as a separate investment. The tax implications depend on the holding period of each installment. Tax on SIP investments do not have any specific advantages over lump-sum investments.
What are the tax implications of switching between mutual fund schemes?
What are the tax implications of switching between mutual fund schemes?
Switching between schemes within the same fund house is generally considered a continuation of the original investment. However, it's advisable to consult with a tax expert to ensure compliance with tax rules.
How can I minimize my tax liability on mutual fund investments?
How can I minimize my tax liability on mutual fund investments?
Investing for the long term (based on type of mutual fund) will lower applicable capital gains tax. Moreover, the first ₹1.25 lakh of LTCG is tax-free. It's important to note that tax laws are subject to change. It's always advisable to consult with a tax professional for the most up-to-date information and personalized advice.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Statutory Disclaimers:
This write up is for information purposes only and is not an offer to sell or a solicitation to buy any mutual fund units/securities.
This information alone is not sufficient and shouldn’t be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party.
The data compiled in this material is obtained by SageStone Capitals from various online sources and Finance Act 2024. While utmost care has been exercised while preparing this document, SageStone Capitals does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information.
The readers, before acting on any information here, should make his/their own investigation and seek appropriate professional advice.
Source: Finance (No. 2) Act, 2024 read with Income Tax Act, 1961.
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