Know all about Capital Gain Taxation in India: F.Y. '2025-26'

As we step into the financial year 2025, understanding how mutual fund investments are taxed has become more crucial than ever. With evolving tax regulations and government policies, investors must stay updated to make informed financial decisions. In this blog, we break down the Long Term taxation on mutual funds in India for FY 2025-26, covering different categories and their implications.

1. Taxation on Equity Mutual Funds

Equity mutual funds invest a minimum of 65% of their assets in equities. The taxation depends on how long you hold the units before selling them. tax treatment of gains from these funds depends on the holding period:

• Short-Term Capital Gains (STCG): If you sell your equity mutual fund units within 12 months of purchase, the gains are considered short-term. As of July 23, 2024, STCG is taxed at 20%, an increase from the previous 15%. ​

• Long-Term Capital Gains (LTCG): For units held longer than 12 months, the gains are classified as long-term. Post July 23, 2024, LTCG exceeding ₹1.25 lakh are taxed at 12.5%, up from the earlier 10% rate on gains above ₹1 lakh. The exemption limit has also been raised from ₹1 lakh to ₹1.25 lakh. 

2. Taxation on Debt Mutual Funds

Debt mutual funds invest in fixed-income securities like bonds. The taxation rules for these funds have undergone significant changes:

• Capital Gains Taxation: Regardless of the holding period, capital gains from debt mutual funds are now taxed at the investor's income tax slab rate. This change eliminates the earlier distinction between short-term and long-term holdings and removes the indexation benefit that previously applied to long-term gains.

3. Taxation of Dividends from Mutual Funds

Dividends received from mutual funds are subject to taxation as follows:

• Tax Treatment: Dividends are added to the investor's total income and taxed according to the applicable income tax slab rates.​

• Tax Deducted at Source (TDS): If the total dividend income exceeds ₹5,000 in a financial year, a TDS of 10% is deducted by the fund house.

  
  

Conclusion : Staying informed about the latest tax regulations is crucial for optimizing returns from mutual fund investments. The recent changes underscore the importance of aligning investment choices with individual financial goals and tax considerations. Consulting with a professional can provide personalized guidance so pick your phone and call us at 9307218766...

📢 For more details, refer to:

• Income Tax Act, 1961 – Income Tax India

• Finance Act, 2023 – Ministry of Finance

• SEBI Guidelines on Mutual Funds – SEBI Official Website

• Reserve Bank of India NRI Investment Rules – RBI Guidelines

📢 Have questions about mutual fund taxation?

Book your one to one counselling session with experts: https://www.infirupee.com

---

---

Disclaimer: Mutual fund investments are subject to market risks, read all scheme related documents carefully. The NAVs of the schemes may go up or down depending upon the factors and forces affecting the securities market including the fluctuations in the interest rates. The past performance of the mutual funds is not necessarily indicative of future performance of the schemes.