Taxation Rules for Mutual Funds in India (2025–26)

Mutual fund investments in India are subject to taxation based on the type of fund, your holding period, and the new tax rules under the Finance Bill 2025. Let’s break it down in simple terms.

1. Equity Mutual Funds

• Short-Term Capital Gains (STCG): If sold within 12 months → taxed at 12.5% + cess & surcharge.
• Long-Term Capital Gains (LTCG): If sold after 12 months → taxed at 12.5% on gains above ₹1.25 lakh/year.

Example: If you earn ₹2 lakh LTCG from equity funds in a year, ₹75,000 will be taxed at 12.5%.

2. Debt Mutual Funds

• Short-Term Capital Gains: If held ≤ 36 months → taxed as per your income tax slab (5%, 10%, 20%, or 30%).
• Long-Term Capital Gains: If held > 36 months → taxed at 20% (without indexation from FY 2023–24 onwards).

3. Hybrid Funds

• If equity portion ≥ 65% → taxed like Equity Funds.
• If equity portion < 65% → taxed like Debt Funds.

4. Specified Mutual Funds (New Rule from 1 April 2023)

If a fund invests more than 65% in debt or other mutual funds, it is treated as a Specified Mutual Fund. All gains (short or long term) are now taxed at your slab rates, regardless of holding period.

5. Income Tax Slabs (New Regime – FY 2025–26)

Income Range	Tax Rate
Up to ₹4,00,000	Nil
₹4,00,001 – ₹8,00,000	5%
₹8,00,001 – ₹12,00,000	10%
₹12,00,001 – ₹16,00,000	15%
₹16,00,001 – ₹20,00,000	20%
₹20,00,001 – ₹24,00,000	25%
Above ₹24,00,000	30%

6. Tax Deduction at Source (TDS)

• For NRI Investors: TDS is deducted before payout (STCG – 20%, LTCG – 12.5%).
• For Resident Investors: No TDS unless income > ₹10,000/year.

⚠️ Disclaimer: This article is for educational purposes only. Tax rules may vary based on your income, residency status, and investment type. Always consult a tax expert before making investment decisions.