Capital Gains Tax on Mutual Funds: How It Works and How to Save
When you sell mutual funds for a profit, you owe capital gains tax, a tax on the profit made from selling an investment. This isn’t just a rule—it’s a reality for anyone who’s bought equity or debt funds in India and later sold them at a higher price. The tax you pay depends on two things: how long you held the fund and what kind of fund it is.
Equity mutual funds, funds that invest at least 65% in Indian stocks get special treatment. If you hold them for more than a year, any profit is called long-term capital gain, a profit from selling an asset held over 12 months. You pay 10% tax on gains over ₹1 lakh in a year—no indexation, no deductions. But if you sell within a year, it’s short-term capital gain, a profit from selling an asset held for less than 12 months, and taxed at 15%. That’s simpler than debt funds, where holding periods and tax rates get messy. For debt funds, short-term gains (under 3 years) are added to your income and taxed at your slab rate. Long-term gains (over 3 years) are taxed at 20% with indexation, which adjusts your purchase price for inflation. Many people don’t realize indexation can cut their tax bill by 30% or more.
It’s not just about holding periods. You can reduce your tax burden by timing sales, using losses from other funds to offset gains, or switching to direct plans to keep more of your returns. Some investors even use systematic withdrawal plans to take money out gradually and stay under the ₹1 lakh exemption limit. The key is knowing the rules before you sell—because the taxman doesn’t wait for you to be ready.
Below, you’ll find clear guides on how to calculate your gains, avoid common mistakes, and use tax-saving strategies that actually work in India’s current system. Whether you’re holding ELSS funds for the lock-in or just managing a portfolio of debt and hybrid funds, these posts break down exactly what you need to know—no jargon, no fluff.
How to Switch Between Mutual Fund Schemes in India Without Triggering Tax
Learn how to switch between mutual fund schemes in India without triggering capital gains tax. Use intra-fund-house switches and STPs to move money tax-free and avoid costly mistakes.
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