Skip to main content
Nico Wealth logo

How are mutual funds taxed in India?

Mutual funds in India are taxed on the capital gains you make when you redeem units, and on any dividends. How much depends on the fund type and how long you held it. For AY 2026-27, equity funds are taxed at 12.5% long-term and 20% short-term, while most debt funds are taxed at your income-tax slab rate. This section explains each case.

Key facts

  • Equity fund long-term gains (held over 12 months) are taxed at 12.5% above ₹1.25 lakh a year, under Section 112A.
  • Equity fund short-term gains (held 12 months or less) are taxed at 20% under Section 111A.
  • Most debt funds are taxed at your slab rate regardless of holding period, under Section 50AA.
  • These rates reflect the Finance (No. 2) Act 2024 and apply for FY 2025-26 (AY 2026-27).

Tax on mutual funds sounds complicated, but it comes down to three questions: what type of fund is it, how long did you hold it, and did you redeem or receive a dividend. Answer those and the rate follows. Everything in this section is for FY 2025-26 (assessment year 2026-27).

Start with the fund type

Capital gains, step by step

At tax-filing time

Tax is only part of the picture. If you want to understand how a distributor fits in, see what a mutual fund distributor does. If your own situation is genuinely complex, a qualified tax professional is worth the fee. For the mutual fund side of it, you are welcome to talk to Nico Wealth.

This is general information, not a recommendation for your situation. If it would help to talk it through, we are happy to. Talk to Nico Wealth.

The information on this website is general and educational. It is not financial, tax, or legal advice, and not a recommendation for your situation. We try to keep it accurate and up to date, but it may contain errors or become outdated. Please verify important details from official sources, and consider your own circumstances, before acting.

Sources

Last verified:

Have a question about this?

If you would like to talk it through with a real person, Nico Wealth is here. No obligation.

Talk to Nico Wealth
WhatsApp