What is the LTCG tax on mutual funds?
Key facts
- Equity funds held over 12 months qualify for long-term treatment at 12.5% (Section 112A).
- The first ₹1.25 lakh of equity long-term gains in a financial year is exempt.
- There is no indexation benefit under the 12.5% long-term regime.
- Other non-equity, non-specified funds need a holding period over 24 months to be long-term.
The equity rule most investors need
For an equity-oriented fund held more than 12 months, long-term capital gains are taxed at 12.5% under Section 112A, and the first ₹1.25 lakh of such gains in a financial year is exempt. There is no indexation. That is the rule that applies to most SIP investors in equity funds.
The exemption is per financial year, not per fund. If your equity long-term gains across all funds add up to more than ₹1.25 lakh in a year, only the excess is taxed.
The other categories
A non-equity fund that is not a specified debt fund, some hybrids, gold funds and certain international funds, needs a holding period of more than 24 months to count as long-term, and is then also taxed at 12.5%. Specified debt funds do not get long-term treatment at all; see debt funds.
Grandfathering for old equity holdings
For equity units bought before 1 February 2018, a grandfathering rule protects gains up to that date when you eventually sell, so you are not taxed on appreciation from before the tax was introduced.
Please verify: confirm the grandfathering computation (fair market value as on 31 January 2018) for a specific old holding before relying on it.
Planning redemptions around the ₹1.25 lakh yearly exemption is a legitimate way to manage tax. If you would like help thinking it through for your holdings, talk to us.
Frequently asked questions
How much long-term capital gains tax do I pay on equity funds?
You pay 12.5% on long-term gains above ₹1.25 lakh in a financial year, under Section 112A, for units held more than 12 months. The first ₹1.25 lakh of such gains each year is exempt, and there is no indexation.
Is the ₹1.25 lakh exemption per fund or per year?
Per financial year, and across all your Section 112A long-term gains from listed equity and equity funds combined. It is not multiplied by the number of funds you hold.
Do debt funds get long-term capital gains treatment?
Specified debt funds, those with over 65% in debt, do not. Their gains are taxed at your slab rate regardless of holding period under Section 50AA. Long-term treatment applies to equity and to the residual "other" category.
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.
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