Long-term capital gains tax on equity mutual funds

An equity-oriented mutual fund — one with at least 65% of its assets in Indian equity — is taxed differently from a debt fund or hybrid fund. The most important distinction is the long-term capital gains (LTCG) regime.

The 12-month threshold

If you hold equity-fund units for more than 12 months before selling them, the gain qualifies as long-term. Each SIP instalment is treated independently — the 12-month clock runs from each instalment date.

The rate and the exemption

The Finance Act 2024 changed two numbers for transfers made on or after 23 July 2024:

• Tax rate: 12.5% on the gain (up from 10%).
• Annual exemption: ₹1.25 lakh per financial year (up from ₹1 lakh).

You add up all your equity LTCG for the financial year. The first ₹1.25 lakh is exempt. Anything above that is taxed at 12.5% plus applicable surcharge and cess. No indexation is available on equity LTCG.

Pre-2018 grandfathering

For units acquired before 1 February 2018, the cost is grandfathered to the higher of (a) actual cost or (b) the closing NAV on 31 January 2018, when computing LTCG. This protects gains that built up before the LTCG regime returned in the 2018 budget.

An example

You bought equity-fund units in 2021 for ₹4,00,000 and sold them in 2026 for ₹6,80,000. The gain is ₹2,80,000. After the ₹1,25,000 exemption, ₹1,55,000 is taxed at 12.5% = ₹19,375 (plus 4% cess = ₹775; total ~₹20,150).

Reporting

LTCG is reported in Schedule CG section B of ITR-2. Most AMCs and most CAS-tracking apps will give you a capital-gains statement at year-end showing the exact figures.