Mutual Fund Capital Gains Tax in India (FY 2026-27)

In FY 2026-27, gains on equity-oriented mutual funds held for more than 12 months are taxed at 12.5% on the amount above ₹1.25 lakh a year, and at 20% if held for 12 months or less. Gains on debt funds bought on or after 1 April 2023 are taxed at your income tax slab rate however long you hold them. Most other funds, such as gold, international and mid-range hybrid funds, are long-term after 24 months (12 months for listed ETFs) and taxed at 12.5%, with short-term gains at slab rate. Indexation is not available for any mutual fund category. Budget 2026 did not change these rates. The Income-tax Act, 2025 has applied since 1 April 2026, but it carries the same rates and holding periods forward from the 1961 Act.

How are mutual fund capital gains taxed in FY 2026-27?

The tax depends on two things: what the fund invests in, and how long you held each unit before selling it.

Mutual fund capital gains tax rates for resident individuals (FY 2026-27, subject to change)

Health and education cess of 4% applies on top of every rate, and surcharge applies at higher incomes. The 20% and 12.5% rates apply to units sold on or after 23 July 2024.

Which tax category does my mutual fund fall into?

The category is set by the fund's portfolio, not by its name.

• Equity-oriented fund: keeps at least 65% of its money in shares of Indian listed companies. Large cap, mid cap, small cap, flexi cap, ELSS, index funds on Indian indices and arbitrage funds usually qualify, as do aggressive hybrid funds that stay above 65% equity.
• Specified mutual fund: the law now defines this as a fund that invests more than 65% of its money in debt and money market instruments, or a fund of funds that invests 65% or more in such funds. This is the category whose units bought from 1 April 2023 are always taxed at slab rate. Liquid, overnight, gilt, corporate bond and most conservative hybrid funds fall here.
• Everything else: funds that are neither of the above, such as many multi-asset funds, gold and silver funds, and international funds of funds. These follow the 24-month rule.

Before FY 2025-26, a specified mutual fund meant any fund with 35% or less in Indian equity, which caught gold and international funds too. The narrower "more than 65% in debt" test now applies, which is why gold and international funds bought after April 2023 can again qualify for the 12.5% long-term rate. Each fund house states the tax treatment of a scheme in its documents, so check there if a fund's category is unclear.

How is LTCG on equity mutual funds calculated?

Long-term capital gain is the sale value minus the purchase cost of the units sold. Add up all long-term gains on equity-oriented funds, listed shares and listed business trust units for the financial year, subtract ₹1.25 lakh, and tax the rest at 12.5%.

Suppose you redeem equity fund units in FY 2026-27 with a long-term gain of ₹2,00,000 and have no other equity gains. Tax applies to ₹75,000, which is ₹9,375 at 12.5%, or ₹9,750 after 4% cess. The ₹1.25 lakh is one exemption per person per year, not per fund, and any unused part cannot be carried forward.

Two further points matter for older or larger holdings:

• Grandfathering: for equity fund units bought before 1 February 2018, the cost is taken as the higher of what you paid and the NAV on 31 January 2018 (limited to the sale value). Gains up to that date stay untaxed.
• Surcharge: on capital gains taxed at the 20% and 12.5% rates, surcharge is capped at 15%. Gains taxed at slab rate attract the normal surcharge for your income level.

Securities transaction tax (STT) of 0.001% is deducted when you redeem units of an equity-oriented fund. The concessional equity rates depend on STT being paid, which the fund house handles. Budget 2026 raised STT on futures and options, not on mutual fund redemptions.

How are debt funds taxed in 2026?

If you bought debt fund units on or after 1 April 2023, every rupee of gain is added to your income and taxed at your slab rate, whether you sell after one week or ten years. There is no indexation and no long-term category. An investor in the 30% slab pays 31.2% including cess on these gains.

Units bought before 1 April 2023 keep the older treatment: held for more than 24 months (12 months for listed units such as ETFs), the gain is long-term and taxed at 12.5% without indexation. Otherwise it is taxed at slab rate. If you hold both old and new units of the same debt fund, the first-in, first-out rule means the older units are sold first.

How is tax on SIP redemption worked out?

Each SIP instalment is a separate purchase with its own date and NAV. When you redeem, units are treated as sold in the order they were bought, oldest first. So a single redemption from a SIP can contain both long-term and short-term units.

Say you started a monthly SIP in an equity fund in January 2025 and redeem everything in October 2026. Instalments from January 2025 to about October 2025 are more than 12 months old and give long-term gains. The rest are short-term and taxed at 20%. In ELSS, each instalment also has its own three-year lock-in, as explained in our guide to ELSS tax-saving mutual funds.

Systematic withdrawals work the same way: each SWP payment redeems the oldest units first, and only the gain portion of each payment is taxed. You can model withdrawal amounts with the SWP calculator. For a full walk-through of all three systematic routes, see how tax works for SIP, STP and SWP.

Are switches, STPs and IDCW payouts taxed?

Switches are redemptions. Moving money from one scheme to another, from a Regular plan to a Direct plan, or from the Growth option to the IDCW option of the same scheme counts as selling the old units and buying new ones. Capital gains tax applies on the switch, and the holding period of the new units starts afresh. Each transfer in an STP is also a redemption from the source fund.

IDCW is taxed as income. Payouts under the income distribution cum capital withdrawal (IDCW) option are added to your income and taxed at slab rate. The fund house deducts TDS at 10% once IDCW from that fund house crosses ₹10,000 in a financial year. Budget 2026 also withdrew the deduction for interest paid on money borrowed to earn such income, from FY 2026-27. For residents, no TDS is deducted on capital gains from redemptions; you pay that tax yourself through advance tax or when filing your return.

Can tax harvesting reduce LTCG on equity funds?

Tax harvesting uses the yearly ₹1.25 lakh exemption on purpose. Before 31 March, you redeem equity fund units carrying long-term gains up to about ₹1.25 lakh and reinvest the money. The gain is booked tax-free and your purchase cost rises, so future taxable gains are smaller.

Points to weigh before doing it:

• The reinvested units start a new 12-month holding period.
• Exit loads, STT and the days your money is out of the market can reduce or cancel the benefit.
• ELSS units cannot be redeemed until their three-year lock-in ends.
• Short-term capital losses can be set off against both short-term and long-term gains, but long-term losses only against long-term gains.

Whether harvesting makes sense depends on your other gains, income and plans for the money, so it is a mechanism to discuss with a chartered accountant, not a saving anyone can promise.

Where do I get the numbers for my tax return?

The registrars CAMS and KFintech issue a capital gains statement for each financial year listing every redemption, its purchase date, cost and gain, split into short-term and long-term. Our guide on what a capital gains statement is and how to obtain it shows the steps. Match it against your Annual Information Statement before filing.

How Sanriya Finvest can help

Sanriya Finvest Pvt. Ltd. is an AMFI-registered mutual fund distributor (ARN-193359) based in Pune. We help investors choose and track schemes through our mutual fund services, and we can help you pull together redemption history and capital gains statements before you meet your chartered accountant. We distribute Regular plans and receive trail commission from the fund house, with no separate fee charged to you. Details are in our commission disclosure. To see how your current holdings are split by tax category and holding period, ask for a free portfolio review.

Tax depends on your individual circumstances, including your income, residential status and other gains, and the rules can change with each Finance Act. Confirm your own position with a chartered accountant before acting.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.