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 Never sell equity before 1 year - saves 7.5%. Shortest lock-in + equity returns. More post-tax return. Yes - treated as redemption plus new investment. No. But best 80C option for equity returns. Plan tax-efficient SIPs with our SIP Calculator.2. Hold Until Long-Term
3. ELSS for 80C
4. Direct Plans
NRI TDS
Documents for ITR
FAQs
Is switch between schemes taxable?
Is ELSS compulsory?
