Capital gains tax on mutual funds: A simple guide for FY 2024-25 | Fusion - WeRIndia

As the ITR filing season for FY 2024-25 (AY 2025-26) kicks off, taxpayers are met with a mix of simplified forms and complex tax jargon.

One major area of confusion remains: the capital gains tax on mutual funds.

Understanding how it works is crucial to avoid tax notices or incorrect filings.

Capital gains arise when you sell a mutual fund unit at a price higher than the purchase price.

These gains are taxed based on:

• Type of mutual fund: Equity or Debt
• Holding period: Short-term or Long-term

Tax on Equity Mutual Funds

These funds invest 65% or more in domestic equities.

Short-Term Capital Gains (STCG)

• Applies if held for 12 months or less
• Tax rate: 15%, increased to 20% w.e.f. 23 July 2024
• Section 111A of the Income Tax Act

Long-Term Capital Gains (LTCG)

• Applies if held for more than 12 months
• Tax rate: 10%, increased to 12.5% from 23 July 2024
• Only the portion exceeding ₹1.25 lakh/year is taxed
• Section 112A of the Act

Tax on Debt Mutual Funds

These funds are mostly invested in debt instruments and follow different rules.

Short-Term Capital Gains (STCG)

• Held for 36 months or less (revised to 24 months w.e.f. 23 July 2024)
• Taxed at your applicable income tax slab rate

Long-Term Capital Gains (LTCG)

• Held for more than the above period
• Tax rate: 20% with indexation
• From 23 July 2024, taxed at 12.5% without indexation
• Section: 112

Special Rule for Specified Mutual Funds

If a fund invests 65% or more in debt or money market instruments, and units are acquired on or after 1 April 2023, then:

• All gains are treated as short-term, no matter the holding period
• Taxed as per your slab rate
• Section: 50AA (effective 1 April 2025)

Before filing your ITR, check the type of fund, date of purchase, and date of sale.

Tools like CAS statements or mutual fund platforms often offer capital gains summaries. Filing correctly now saves you from penalties later.

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