Long-Term Capital Gain (LTCG)<\/td> More than 12 months<\/td> 12.5% (flat) + surcharge + cess<\/td> Rs. 1.25 lakh per year (aggregate)<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nBudget 2024 Change: STCG rate on equity was raised from 15% to 20%. LTCG rate was raised from 10% to 12.5%. The exemption limit was raised from Rs. 1 lakh to Rs. 1.25 lakh. These changes apply to transactions on or after 23 July 2024.<\/em><\/p>\n\n\n\n<\/span>Debt Mutual Funds (Post 1 April 2023 Purchases)<\/span><\/h2>\n\n\n\nPurchase Date<\/strong><\/td>Tax Treatment<\/strong><\/td>Applicable Rate<\/strong><\/td><\/tr><\/thead>Purchased before 1 April 2023 (held >36 months)<\/td> LTCG with indexation<\/td> 20% with indexation benefit<\/td><\/tr> Purchased before 1 April 2023 (held \u226436 months)<\/td> STCG<\/td> Income tax slab rate<\/td><\/tr> Purchased on or after 1 April 2023 (any holding period)<\/td> Taxed as ordinary income<\/td> Income tax slab rate (no indexation, no LTCG benefit)<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nNote: The Finance Act 2023 removed the LTCG benefit and indexation for debt mutual funds purchased on or after 1 April 2023. This fundamentally changed debt fund tax efficiency versus fixed deposits.<\/em><\/p>\n\n\n\n<\/span>Hybrid & Other Fund Categories<\/span><\/h2>\n\n\n\nFund Category<\/strong><\/td>Equity Exposure<\/strong><\/td>STCG Rate<\/strong><\/td>LTCG Rate<\/strong><\/td>Indexation<\/strong><\/td><\/tr><\/thead>Aggressive Hybrid (\u226565% equity)<\/td> \u226565%<\/td> 20%<\/td> 12.5% above Rs. 1.25L<\/td> No<\/td><\/tr> Conservative Hybrid \/ Debt-oriented Hybrid<\/td> <35% equity<\/td> Slab rate<\/td> Slab rate (post Apr 2023)<\/td> No (post Apr 2023)<\/td><\/tr> Balanced Advantage Fund (35-65% equity)<\/td> 35-65%<\/td> 20% or slab<\/td> 12.5% or slab<\/td> Depends on equity exposure<\/td><\/tr> International \/ Overseas Funds<\/td> Foreign equity<\/td> Slab rate<\/td> Slab rate (post Apr 2023)<\/td> No (post Apr 2023)<\/td><\/tr> Gold ETF \/ Gold Fund<\/td> No equity<\/td> Slab rate (\u226424 months)<\/td> 12.5% (>24 months, no indexation post 2024)<\/td> No (post 2024)<\/td><\/tr> Fund of Funds \u2013 Domestic Equity<\/td> \u226590% in equity MFs<\/td> 20%<\/td> 12.5% above Rs. 1.25L<\/td> No<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<\/span>What Is Indexation Benefit and Who Can Still Claim It?<\/strong><\/span><\/h2>\n\n\n\nIndexation allows you to inflate your purchase cost using the Cost Inflation Index (CII) notified by the Income Tax Department each year. This reduces your effective capital gain and therefore your tax liability.<\/p>\n\n\n\n
Post the Finance Act 2024 amendments, indexation for most asset classes has been modified. For mutual funds specifically:<\/p>\n\n\n\n
\nEquity mutual funds: Never had indexation benefit tax at flat rates<\/li>\n\n\n\n Debt mutual funds purchased before 1 April 2023 and held for more than 36 months: LTCG with indexation at 20% still applies grandfathered treatment<\/li>\n\n\n\n Debt mutual funds purchased on or after 1 April 2023: No indexation, taxed at slab rates regardless of holding<\/li>\n\n\n\n Gold funds and FoFs: Post Finance Act 2024, the 20% with indexation benefit for long-term gains has been replaced with 12.5% without indexation<\/li>\n<\/ul>\n\n\n\nAsset Class<\/strong><\/td>Pre-1 April 2023 Purchases (Long-term)<\/strong><\/td>Post-1 April 2023 Purchases<\/strong><\/td><\/tr><\/thead>Debt Mutual Funds<\/td> 20% with indexation (LTCG >36 months)<\/td> Slab rate, no indexation<\/td><\/tr> International Funds<\/td> 20% with indexation (LTCG >36 months)<\/td> Slab rate, no indexation<\/td><\/tr> Gold ETF \/ Gold Funds<\/td> 20% with indexation (LTCG >24 months)<\/td> 12.5% without indexation (LTCG >24 months)<\/td><\/tr> Equity Mutual Funds<\/td> 12.5% without indexation (LTCG >12 months)<\/td> 12.5% without indexation (LTCG >12 months)<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<\/span>Exemptions Available on Mutual Fund Capital Gains<\/strong><\/span><\/h2>\n\n\n\n<\/span>Rs. 1.25 Lakh LTCG Exemption on Equity Funds<\/strong><\/span><\/h3>\n\n\n\nUnder Section 112A of the Income Tax Act, 1961, long-term capital gains from equity-oriented mutual funds are exempt up to Rs. 1.25 lakh per financial year (aggregate across all equity assets including equity MFs, equity shares, equity ETFs, and units of business trusts).<\/p>\n\n\n\n
Only gains exceeding Rs. 1.25 lakh are taxed at 12.5% (without indexation).<\/p>\n\n\n\n
Example: If your total LTCG from equity mutual funds and direct equity shares combined is Rs. 2 lakh in FY 2025-26, your taxable LTCG is Rs. 75,000 (Rs. 2L minus Rs. 1.25L), taxed at 12.5% = Rs. 9,375.<\/em><\/p>\n\n\n\n<\/span>Section 54F: Capital Gain Exemption on Reinvestment in Residential Property<\/strong><\/span><\/h3>\n\n\n\nIf you redeem any long-term capital asset (including mutual fund units classified as long-term, other than a residential house) and reinvest the net consideration in purchasing or constructing a residential house property, you may claim exemption under Section 54F.<\/p>\n\n\n\n
This is particularly useful for investors planning to deploy mutual fund redemption proceeds into real estate.<\/p>\n\n\n\n
<\/span>Section 54EE and 54EC: Bonds<\/span><\/h3>\n\n\n\nLong-term capital gains from mutual funds may also qualify for exemption under Section 54EC by reinvesting up to Rs. 50 lakh in specified NHAI or REC bonds within 6 months of the sale.<\/p>\n\n\n\n
<\/span>Tax Loss Harvesting: A Practical Strategy for Mutual Fund Investors<\/strong><\/span><\/h2>\n\n\n\nTax loss harvesting is a strategy where investors intentionally redeem loss-making mutual fund units before the financial year end (March 31) to book losses, which can then be set off against existing capital gains to reduce tax liability.<\/p>\n\n\n\n
<\/span>How Set-Off Rules Work Under the Income Tax Act<\/strong><\/span><\/h3>\n\n\n\nType of Loss<\/strong><\/td>Can Be Set Off Against<\/strong><\/td>Carry Forward Period<\/strong><\/td><\/tr><\/thead>Short-Term Capital Loss (STCL)<\/td> STCG or LTCG (any asset)<\/td> 8 years<\/td><\/tr> Long-Term Capital Loss (LTCL)<\/td> LTCG only (same or different asset)<\/td> 8 years<\/td><\/tr> Business Loss<\/td> Business income only (not capital gains)<\/td> 8 years<\/td><\/tr> Speculative Loss<\/td> Speculative income only<\/td> 4 years<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nKey Insight: You can set off your short-term capital losses from poorly performing debt funds against long-term capital gains from equity funds. This cross-asset, cross-category set-off is allowed under the Income Tax Act and is a powerful planning tool.<\/em><\/p>\n\n\n\n<\/span>Tax Harvesting in Practice: Example<\/strong><\/span><\/h2>\n\n\n\nSituation: Aditya has LTCG of Rs. 3 lakh from equity mutual funds in FY 2025-26. He also has STCL of Rs. 1.5 lakh from an international fund that has underperformed.<\/p>\n\n\n\n
\nTaxable LTCG before set-off = Rs. 3 lakh<\/li>\n\n\n\n Less: LTCG exemption = Rs. 1.25 lakh<\/li>\n\n\n\n Taxable LTCG after exemption = Rs. 1.75 lakh<\/li>\n\n\n\n Less: STCL set-off = Rs. 1.5 lakh<\/li>\n\n\n\n Net taxable LTCG = Rs. 25,000<\/li>\n\n\n\n Tax at 12.5% = Rs. 3,125 (versus Rs. 21,875 without harvesting)<\/li>\n<\/ul>\n\n\n\n<\/span>AIS, Form 26AS and Mutual Fund Capital Gains: Reporting Obligations<\/strong><\/span><\/h2>\n\n\n\n