Tax on mutual fund gains in 2025-26: LTCG, STCG and how to save
Aeterna Wealth · figures from our fund data, updated 5 Nov 2026
Equity fund units held more than 12 months: 12.5% tax on gains above ₹1.25 lakh in a financial year. Held 12 months or less: 20%. Debt funds bought from 1 April 2023: your slab rate, however long you hold them. Using the ₹1.25 lakh exemption every year by booking gains and reinvesting can save up to ₹16,250 of tax a year, with cess.
The rates
- Equity funds (65%+ in Indian equity), held more than 12 months: 12.5% on gains above ₹1.25 lakh a year.
- Equity funds held 12 months or less: 20%.
- Debt funds bought from 1 April 2023: slab rate, no indexation.
- Hybrid funds: taxed as equity or debt depending on their equity share.
- A 4% health and education cess applies on top; surcharge for high incomes.
Five legal ways to pay less
- Harvest the ₹1.25 lakh exemption every year: sell units with that much long-term gain and reinvest. That saves up to ₹16,250 a year, more for a family where each member has their own exemption.
- Set off losses: short-term losses against any capital gains, long-term losses only against long-term gains. Carry unused losses forward for 8 years by filing on time.
- Mind the 12-month line: waiting a few weeks can change a 20% tax into 12.5%, or zero within the exemption.
- Redeem in the right order: units go out first in, first out, so know which lots you are selling.
- Plan switches: moving from Regular to Direct, or between funds, is a sale and can trigger tax.
Worked example
You sell equity fund units held 18 months with a ₹3 lakh gain. Taxable: ₹3,00,000 − ₹1,25,000 = ₹1,75,000. Tax at 12.5% plus 4% cess: ₹22,750.
Common questions
Is there a wash-sale rule in India?
There is no specific wash-sale rule today, so reinvesting straight after a tax-harvesting sale is allowed.
Is SIP taxed differently?
Each SIP instalment is a separate purchase with its own 12-month clock.
Do NRIs pay the same tax?
The rates are similar, but fund houses deduct TDS on NRIs' redemptions; a tax treaty may reduce the final tax.
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General information, not investment or tax advice for your situation. Mutual fund investments are subject to market risks; read all scheme-related documents carefully. Past performance does not guarantee future returns.