How mutual fund gains are taxed in India (2026-27)
Every fund falls into one of three groups for tax. The group and how long you held the units set the rate.
Updated 23 Oct 2026 · 3 min read
Tax is due when you redeem or switch units, on the gain: what you receive minus what you paid. Growth is not taxed while you hold the units. IDCW payouts are taxed in the year you receive them.
The rates at a glance
| Kind of fund | Held for | Tax on the gain |
|---|---|---|
| Equity-oriented | 12 months or less | 20% |
| Equity-oriented | More than 12 months | 12.5% on long-term gains above ₹1.25 lakh in the financial year |
| Debt, bought on or after 1 April 2023 | Any period | Your slab rate |
| Debt, bought before 1 April 2023 | More than 24 months | 12.5% |
| Debt, bought before 1 April 2023 | 24 months or less | Your slab rate |
| Other funds | More than 24 months (12 for listed units such as ETFs) | 12.5% |
| Other funds | 24 months or less (12 for listed units) | Your slab rate |
Health and education cess of 4% is added to the tax in every row. A surcharge also applies when total income is above ₹50 lakh.
Equity-oriented funds
A fund is equity-oriented if it keeps at least 65% in shares of Indian companies. That covers most equity funds, ELSS, index funds and ETFs that track Indian share indices, aggressive hybrid funds and arbitrage funds.
Gains on units held 12 months or less are short-term and taxed at 20%. Gains on units held longer are long-term. The first ₹1.25 lakh of long-term gains in a financial year is tax-free and the rest is taxed at 12.5%. The ₹1.25 lakh is one limit for each person, shared with long-term gains on listed shares.
Debt funds
The tax law calls these specified mutual funds: from 1 April 2025, funds with more than 65% in debt and money-market instruments. Liquid, overnight, gilt and most other debt funds fall here.
For units bought on or after 1 April 2023, the whole gain is added to your income and taxed at your slab rate, however long you held them. Units bought earlier are taxed at 12.5% without indexation if held more than 24 months, and at your slab rate if held less.
Other funds
These are funds in neither group: hybrid funds with between 35% and 65% in Indian shares, and most gold, silver and international fund of funds. Gains are taxed at 12.5% on units held more than 24 months, or more than 12 months for units listed on a stock exchange, such as gold and silver ETFs. Gains on units held for less are taxed at your slab rate.
IDCW payouts
An IDCW payout is added to your income and taxed at your slab rate in the year you receive it, whatever kind of fund pays it. If one fund house pays you more than ₹10,000 of IDCW in a financial year, it deducts TDS of 10% before paying. That TDS counts towards your tax for the year.
No TDS on redemptions for residents
When a resident redeems units, no TDS is deducted. Any tax due is paid through advance tax or when you file your return. Non-residents have TDS deducted on redemption gains.
How the holding period is counted
Each purchase has its own date, including every SIP instalment. When you redeem part of a holding, the oldest units go first. One redemption can therefore include long-term and short-term units, each taxed at its own rate. Losses on one fund can reduce the tax on gains from another; tax harvesting sets out the rules.
The new Income-tax Act
The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. It renumbers the sections and calls the April-to-March year the tax year, so section numbers quoted from the old Act do not match the new one.
Questions
Is there tax on a mutual fund I have not sold?
Not in the Growth option. Tax is due when you redeem or switch units. IDCW payouts are taxed in the year you receive them.
Is a switch from one fund to another taxed?
Yes. A switch is a redemption from one fund and a purchase in the other, so gains on the units switched out are taxed in that year.
Are arbitrage funds taxed as equity or debt?
As equity. They keep at least 65% in Indian shares, so the equity rates apply: 20% up to 12 months, and 12.5% on long-term gains above ₹1.25 lakh after that.
Does the ₹1.25 lakh limit apply to each fund?
No. It is one limit for each person in each financial year, across all long-term gains on equity-oriented funds and listed shares.
Each fund page has its returns, risk, costs, managers and everything it holds.
This guide explains how things work. It is not investment, tax or legal advice. Rules change; check the fund house's documents, and a qualified adviser for your own case.