Mutual fund taxation for AY 2025-26: Latest capital gain tax rules for equity mutual funds, debt mutual funds, international mutual funds, gold mutual funds, others

Economic Times

22-07-2025

ET Online The capital gain tax rule for various categories of mutual funds has been updated in FY 2024-25. The new capital gain tax rules for mutual funds will stay in effect till they are changed again by the government.
ET Wealth online spoke with Naveen Wadhwa, Vice-President of Research & Advisory at Taxmann.com, to understand the old and new capital gains tax rules for different categories of mutual funds. The rules mentioned below apply to individuals whose residential status is either Resident but ordinarily resident (ROR) or Resident but not ordinarily resident (RONR).
The mutual fund capital gains taxation rules mentioned below are for the FY 2024-25 (AY 2025-26). These rules will help you to understand the capital gains tax calculation while filing income tax return (ITR) this year.
Wadhwa says, "For taxation purposes, mutual funds are categorised as equity mutual funds and non-equity mutual funds. The new and old rules for the computation of capital gains from equity mutual funds are the same as those for listed shares. In the case of non-equity mutual funds, there are different taxation rules. This depends on the date of purchase and date of sale. Some of the non-equity mutual funds are debt mutual funds, hybrid mutual funds, international mutual funds and gold mutual funds."
Also Read: Capital gains tax ready recknor for house property, listed shares, unlisted shares for FY 2024-25 Capital gain rules from equity mutual funds A mutual fund is categorised as an equity mutual fund if a scheme holds a minimum of 65% of its assets in equity and equity-related instruments.
New STCG, LTCG rules for equity mutual funds from July 23, 2024: Capital gains arising from the sale of equity mutual funds can be termed as short-term or long-term. Capital gains from equity mutual funds are termed short-term capital gains (STCG) if they are sold on or before the completion of one year. These STCG are taxed at 20% plus cess.Capital gains are termed long-term capital gains (LTCG) if they are sold after the completion of one year. The LTCG is taxed at 12.5%. LTCG up to Rs 1.25 lakh in a financial year is exempted from tax. Hence, no tax is payable if the LTCG does not exceed Rs 1.25 lakh. This limit applies to the aggregate amount of long-term capital gains from equity mutual funds and listed equity shares. This means you will need to pay 12.5% LTCG tax only on the gains above Rs 1.25 lakh. Old Rule (Till July 22, 2024) New Rule (From July 23, 2024) Equity Mutual Funds STCG: 15%
LTCG: 10% (above ₹1.25L exemption) STCG: 20% + cess
LTCG: 12.5% (above ₹1.25L exemption) Debt Mutual Funds Purchased on or before Mar 31, 2023: STCG: Slab rate (if < 36 months) LTCG: 20% with indexation (if > 36 months)
Purchased on or after Apr 1, 2023:
Taxed at slab rate regardless of holding period Purchased till Mar 31, 2023 & sold on or after July 23, 2024: STCG: Slab rate (if < 2 years) LTCG: 12.5% without indexation (if > 2 years)
Purchased on or after Apr 1, 2023:
Same as before – slab rate regardless of holding Hybrid Mutual Funds Equity ≥ 65%: Taxed like equity mutual funds
Equity < 65%: Taxed as per slab rate (like debt funds) Same treatment based on equity %: Equity ≥ 65%: Use new equity MF rules
Equity < 65%: Slab rate (like debt) Gold Mutual Funds Taxed as per income tax slabs Same as old – taxed as per slab rate International Mutual Funds Taxed as per income tax slabs Same as old – taxed as per slab rate Fund of Funds (FoFs) If taxed like equity: Use old equity rules
If taxed as slab: Apply slab rate Same rule continues: Equity-like FoFs – use new equity rules
Others – slab rate ETFs (non-equity based) STCG: Slab rate (if sold ≤ 1 year)
LTCG: 10% (if sold > 1 year, no indexation) STCG: Slab rate (if sold ≤ 1 year)
LTCG: 12.5% (if sold > 1 year, no indexation)
Old STCG, LTCG rules for equity mutual funds till July 22, 2024: For equity mutual funds sold between April 1, 2024, and July 22, 2024, the old STCG and LTCG rules will apply. The categorisation of capital gains as STCG and LTCG based on the period of holding remains the same under both the old and new rules. STCG refers to those equity mutual funds that are sold on or before the completion of one year of purchase. LTCG refers to those equity mutual funds that are sold after one year from the date of purchase. Tax rates for STCG and LTCG are different under the old rules. Under the old rules, LTCG from equity mutual fund is taxed at 10% without indexation benefit. STCG from an equity mutual fund is taxed at a rate of 15%. For the financial year 2024-25, the aggregate limit of Rs 1.25 lakh will apply for LTCG exemption on equity mutual funds and listed shares, irrespective of the date of sale. This tax needs to be paid only on the gains above Rs 1.25 lakh in the given financial year. Capital gain rules for debt mutual funds For capital gains from debt mutual funds, two key dates matter: the date of purchase and the date of sale. Here is a look at how the date of purchase and sale impacts your capital gains.
The rules for taxing capital gains from debt mutual funds were revised starting April 1, 2023. The current capital gains rule applies to investments made on or after April 1, 2023. Since then, the rules for taxing capital gains from debt mutual funds have not changed. Currently, gains from debt mutual funds are taxed at income tax slabs applicable to their income, irrespective of the holding period. Debt mutual fund investments made till March 31, 2023 What if your debt mutual fund investments were made on or before March 31, 2023?According to experts who spoke with ET, if debt mutual funds are purchased on or before March 31, 2023, the capital gains rules apply differently. This will depend on the date of sale.
Debt mutual funds sold till July 22, 2024 For debt mutual fund investments made till March 31, 2023, and sold on or before July 22, 2024, then capital gains will either be termed as STCG or LTCG. Such capital gains will be termed as STCG if the debt mutual funds are sold on or before the completion of 36 months (three years). STCG will be taxed at the income tax slabs applicable to your income.Capital gains from debt mutual funds will be referred to as LTCG if these are sold after the completion of 36 months (three years). LTCG on these debt mutual funds will be taxed at 20% with added indexation benefit.The process of adjusting the purchase price to account for inflation by inflating costs is called indexation.
Debt mutual funds sold on or after July 23, 2024 For debt mutual fund investments made till March 31, 2023, and sold on or after July 23, 2024, the capital gain rules are different.Wadhwa says, "Debt mutual funds sold on or after July 23, 2024 (that were purchased till March 31, 2023), will have no indexation benefit. The LTCG from these debt mutual funds (sold after the completion of two years) will be taxed at 12.5% without indexation. STCG from these debt mutual funds (if sold before the completion of two years) will be taxed at income tax slabs."
Also Read: No indexation benefit if the debt mutual funds are sold on or after July 23, 2024 Capital gain rules from hybrid mutual funds Hybrid mutual funds come in three types: conservative, balanced, and aggressive. The taxation of these categories of hybrid mutual fund depends on the securities held by the fund manager in the scheme portfolio.
Aggressive hybrid mutual funds: As per SEBI guidelines, these funds should have an allocation of between 65% and 80% to equities and between 20% and 35% to debt and other instruments, such as cash.
Balanced hybrid mutual fund: As per SEBI guidelines, balanced hybrid mutual funds should have an allocation between 40% to 60% of total assets in equity and debt. No arbitrage would be permitted in this scheme.
Conservative hybrid mutual funds: These funds will have an allocation of between 75% and 90% to debt instruments and between 10% and 25% to equities, as per SEBI guidelines. Wadhwa says, "For income tax purposes, mutual funds having a minimum equity allocation of 65% or more will be taxed in the same fashion as normal equity mutual funds."If the hybrid mutual fund is taxed like an equity mutual fund, then knowing the date of redemption is essential to determine the correct tax rate. This is because the tax rate for equity mutual funds is different under the old and new capital gains rules. However, if the hybrid mutual fund is taxed according to the income tax slabs, then there are no changes in the old and new capital gains rules. The date of redemption does not affect the calculation of capital gain tax for FY 2024-25 (AY 2025-26).Wadhwa says, "Other hybrid mutual funds having a minimum equity allocation of less than 65%, then capital gains from such mutual funds will be taxed at the income tax slabs applicable to your income. However, the taxation rule that will apply to your investment will depend on the date of investment and the date of sale. This is similar to how debt mutual fund taxation is mentioned above." Capital gain rules for gold mutual funds Gold mutual funds in India typically invest in gold ETFs (Exchange-Traded Funds).Wadhwa says, "Capital gains from gold mutual funds are taxed at the income tax slabs. The old and new rules are the same for capital gain taxation from gold mutual funds. Here also, investors should be mindful of the date of investment and the date of sale to know the correct rules for capital gains taxation. This is also similar to debt mutual funds." This rule is applicable for AY 2025-26. Capital gain rules from international mutual funds These mutual funds primarily invest in foreign equities. Wadhwa says, "Capital gains from international mutual funds are taxed at the income tax slabs. The old and new rules are the same for capital gain taxation from international mutual funds. Here also, investors should be mindful of the date of investment and the date of sale to know the correct rules for capital gains taxation. This is also similar to debt mutual funds." This rule is applicable for AY 2025-26. Capital gain rules from Fund of Funds (FoF) mutual funds These mutual funds invest in other funds. According to SEBI, "A Fund of Funds (FoF) invests in other funds. Investment in these funds helps investors spread their risks across various markets and asset classes while benefiting from professional fund management. A Fund of Funds is essentially a "fund made up of funds." It pools money from investors and invests it in a collection of other mutual funds, or exchange-traded funds (ETFs). By doing so, it provides a diversified investment portfolio managed by experts."Examples of FoF are - ICICI Prudential Thematic Advantage Fund (FoF), Aditya Birla Sun Life Asset Allocator FoF, Quantum Multi Asset Fund of Funds.If the FoF mutual fund is taxed like an equity mutual fund, then knowing the date of redemption is essential to determine the correct tax rate. This is because the tax rate for equity mutual funds is different under the old and new capital gains rules. However, if the FoF mutual fund is taxed according to the income tax slabs, then there are no changes in the old and new capital gains rules. The date of redemption does not affect the calculation of capital gain tax for FY 2024-25 (AY 2025-26).Wadhwa says, "Where capital gains from the FoF mutual funds are taxed at the income tax slabs, the old and new rules are the same for capital gain taxation. Here also, investors should be mindful of the date of investment and the date of sale to know the correct rules for capital gains taxation. This is also similar to debt mutual funds." This rule is applicable for AY 2025-26. Capital gain rules from ETF investments ETFs stand for Exchange Traded Funds. An individual can invest in these funds via their Demat accounts. ETFs are listed on stock exchanges. There are various types of ETFs, such as for stocks, debt, gold, etc.The new capital gains rules have simplified the asset class, as listed and unlisted securities, as well as non-financial assets. Based on the asset class, the holding period is determined. Under the new rules, capital gains from listed securities are classified as long-term capital gains (LTCG) if the securities are sold after one year has passed. Otherwise, the gains are short-term capital gains. Capital gains from unlisted securities and non-financial assets are classified as long-term capital gains (LTCG) if the asset is sold after two years from the date of purchase. Otherwise, the gains are short-term capital gains.According to Wadhwa, "As ETFs are listed on the stock exchanges, the capital gains will be classified as LTCG provided units are sold after completion of one year. These LTCGs will be taxed at 12.5% without indexation benefit. STCGs arising from the sale of ETF units on or before the completion of one year will be taxed at the income tax slabs. This taxation will apply to all ETFs, where the underlying assets are other than equity shares. However, this new rule will apply to ETF units sold on or after July 23, 2024."Wadhwa further adds, "For ETF units sold on or before July 22, 2024, the gains will be taxed at 10% without indexation benefits, provided units are sold after completion of one year for gains to qualify as LTCG. In case gains are STCG, then it will be taxed at income tax slabs." Capital gains rule will change for these mutual fund investments from April 1, 2025 The government has revised the definition of debt mutual funds in the Income Tax Act from April 1, 2025. As per the new definition, a debt mutual fund will invest more than 65% of its total proceeds in debt and money market instruments or a fund-of-funds with the underlying having a similar debt investment mix. The new definition came into effect on April 1, 2025. Earlier, the specified debt mutual fund was defined as a mutual fund where not more than 35% of its total proceeds are invested in the equity shares of domestic companies. Due to this change of definition, taxation of specific mutual fund investments made on or after April 1, 2025, is impacted. These specific mutual funds are - International mutual funds, Gold mutual funds, Balanced hybrid funds, and fund of funds (where the debt portion is less than 65%).Wadhwa says, "Investments made on or after April 1, 2025, in the specified mutual fund schemes where the debt instruments are less than 65% will have different taxation rules. Under the new rule, gains will be termed LTCG if the mutual fund units are sold on or after the completion of two years. LTCG will be taxed at 12.5%. On the other hand, STCG of these mutual fund units will be taxed at the income tax slabs. For investments made in these mutual fund schemes between April 1, 2023, and March 31, 2025, the gains will be taxed at the income tax slabs, irrespective of the holding period. If investments made in these schemes on or before March 31, 2023, are held, then capital gains mutual fund units sold after the completion of two years will be classified as LTCG. This LTCG will be taxed at 12.5% without the indexation benefit. Else, gains will be termed as STCG and taxed at income tax slabs."
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