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Mutual Fund Taxes: Equity vs. Debt Explained
22 Nov
Summary
- Equity funds: short-term gains taxed at 20%, long-term at 12.5% above ₹1.25 lakh.
- Debt funds bought before April 1, 2023, taxed at 12.5% after two years.
- Short-term debt fund gains are taxed as per normal income slab rates.
Capital gains tax applies to mutual fund sales, with rates varying based on whether the fund is equity or debt-oriented and the holding duration. For equity funds, gains from investments held less than 12 months are considered short-term and taxed at 20%.
Long-term equity gains, from holdings exceeding 12 months, are taxed at 12.5%, with an exemption of ₹1.25 lakh. Debt mutual funds, defined as 'specified mutual funds' if less than 35% of assets are in domestic equities, have unique tax rules.
For debt funds acquired before April 1, 2023, sales made two years after purchase are subject to a 12.5% tax. Any sales of debt funds within two years of purchase will be taxed according to the investor's normal income tax slab.
