What is the STCG tax on mutual funds?
Key facts
- Equity funds held 12 months or less are taxed at 20% under Section 111A.
- There is no annual exemption for short-term gains, unlike the long-term ₹1.25 lakh.
- Other non-equity funds held 24 months or less are taxed at your slab rate.
- Specified debt funds are taxed at your slab rate whatever the holding period.
The equity short-term rate
If you redeem an equity-oriented fund within 12 months, the gain is short-term and taxed at 20% under Section 111A. There is no annual exemption for short-term gains, unlike the ₹1.25 lakh that applies to long-term equity gains. A surcharge where applicable, and a 4% cess, apply on top.
Everything else is slab-based
For a specified debt fund, there is no separate short-term rate; the gain is simply added to your income and taxed at your slab rate under Section 50AA, whatever the holding period. The residual "other" category, some hybrids, gold funds and certain international funds, is taxed at your slab rate if held 24 months or less, and long-term at 12.5% beyond that.
The practical takeaway
The gap between the 20% short-term equity rate and the 12.5% long-term rate is one honest reason not to churn an equity fund inside a year. That said, tax is a consequence of a decision, not a reason to make one. If you are weighing a redemption, see long-term gains for the other side, and talk to us if it would help to think it through.
Frequently asked questions
What is the short-term capital gains tax on equity mutual funds?
For units held 12 months or less, short-term gains are taxed at 20% under Section 111A for AY 2026-27. Unlike long-term gains, there is no ₹1.25 lakh annual exemption for short-term gains.
How are short-term gains on debt funds taxed?
Specified debt funds are taxed at your income-tax slab rate regardless of holding period, so there is no separate short-term rate for them. The same slab treatment applies to the residual "other" category held 24 months or less.
Does holding for just over 12 months change the tax?
For equity funds, yes. Cross 12 months and gains move from the 20% short-term rate to the 12.5% long-term rate with a ₹1.25 lakh exemption. That is a meaningful difference, though it should not by itself dictate your decision.
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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