Mutual Fund Taxation in India 2026 - Complete Tax Guide

Mutual fund taxation changed significantly after Budget 2024. If you were investing under old rules, here is your complete 2026 updated tax guide.

Two Tax Types

• STCG: Units sold before long-term threshold
• LTCG: Units sold after threshold - lower rate

Equity Funds (>=65% Indian Equity)

Short-Term (< 1 year)

• STCG: 20% flat (up from 15%)

Long-Term (>= 1 year)

• LTCG: 12.5% (up from 10%)
• Exemption: First Rs.1.25 Lakh/year (up from Rs.1 Lakh)
• No indexation

Example

Rs.5 Lakh invested, Rs.7.5 Lakh after 2 years (gain Rs.2.5 Lakh). Exempt Rs.1.25L, taxable Rs.1.25L x 12.5% = Rs.15,625 tax.

Debt Funds (After April 2023)

Major change: Indexation removed. All gains taxed at your income slab:

• 5% slab: 5% on gains
• 20% slab: 20%
• 30% slab: 30%

Less attractive than before - evaluate vs FDs.

ELSS Tax Saving

• Section 80C deduction up to Rs.1.5 Lakh
• Tax saved up to Rs.46,800/year (30% slab)
• Lock-in 3 years
• On redemption: LTCG at 12.5% above Rs.1.25 Lakh

Hybrid Funds

• Aggressive (>=65% equity): Equity rules
• Conservative (<65%): Debt rules

Dividend/IDCW Tax

Added to income, slab rate. TDS 10% if >Rs.5,000/year.

SIP FIFO Rule

First In First Out. Each SIP installment has own date. When selling, oldest units sold first.

Tax-Saving Strategies

1. Harvest LTCG Yearly

Sell units with

2. Hold Until Long-Term

Never sell equity before 1 year - saves 7.5%.

3. ELSS for 80C

Shortest lock-in + equity returns.

4. Direct Plans

More post-tax return.

NRI TDS

• Equity STCG: 20%
• Equity LTCG: 12.5%
• Debt: Slab rate

Documents for ITR

• Capital Gain statement from AMC
• CAS from CAMS online - free

FAQs

Is switch between schemes taxable?

Yes - treated as redemption plus new investment.

Is ELSS compulsory?

No. But best 80C option for equity returns.

Plan tax-efficient SIPs with our SIP Calculator.