Tax on mutual fund gains in India
Mutual fund tax in India turns on three things: whether the scheme is equity-oriented, how long you held the specific units you sold, and when you bought them. Rates and exemption limits change with each Finance Act, so this page explains the structure — confirm the current rates for your assessment year before filing.
How each category is treated
| Scheme type | Shorter holding | Longer holding |
|---|---|---|
| Equity-oriented funds (65%+ in Indian equity, incl. ELSS) | Held up to 12 months — short-term capital gains | Held over 12 months — long-term capital gains, with an annual exemption on gains before tax applies |
| Debt funds (invested 65%+ in debt) bought on or after 1 Apr 2023 | Gains added to income and taxed at your slab rate, regardless of holding period | No separate long-term treatment for these purchases |
| Hybrid / other funds | Treated as equity or non-equity depending on the scheme’s actual equity allocation | Follow the matching category above — check the scheme information document |
The part most SIP investors get wrong
A SIP is not one investment. Every instalment buys a separate lot of units with its own purchase date. When you redeem, units are taken out on a first-in-first-out basis, so the oldest instalments are sold first and each lot's holding period is judged on its own. A three-year-old SIP redeemed in full will therefore produce both long-term and short-term gains in the same transaction.
This is why partial redemptions are usually cheaper than full ones: you can stop at the point where the remaining lots are still short of the long-term threshold, and let them season.
IDCW (dividend) payouts are added to your income and taxed at your slab rate, with TDS deducted by the AMC above the threshold. That is why a growth option is generally the simpler choice for accumulation, and an SWP the simpler choice for drawdown — an SWP is a redemption, so only the gain portion is taxed, not the whole payout.
NRIs face TDS at source on redemption rather than paying at filing time, at rates that depend on the fund category and any applicable treaty relief.
Practical housekeeping
- Download the capital gains statement from your RTA (CAMS or KFintech) — it already applies FIFO.
- Match it against your AIS before filing; mismatches on mutual fund redemptions are a common notice trigger.
- ELSS units cannot be redeemed inside the statutory lock-in, and each SIP instalment locks separately.
- Set-off and carry-forward rules for capital losses apply here too — losses do not simply disappear.
Work out the impact on your own plan
This page is educational and general in nature. It is not tax advice and does not account for your personal circumstances — consult a qualified tax professional before acting.
Educational · AP + AMFI MFD · Not RIA / RA · PaRRVA out-of-scope