Under current rules, equity-oriented mutual funds held over 12 months are taxed as long-term gains at 12.5% on gains above ₹1.25 lakh a year; sell within 12 months and the gain is taxed at 20%. Debt-oriented funds bought recently are taxed at your income-tax slab, whatever the holding period. Rates change, so confirm the year's limits or check with a CA before you act.
| Fund type | Held | Tax on gains |
|---|---|---|
| Equity-oriented | Up to 12 months | 20% (short-term) |
| Equity-oriented | Over 12 months | 12.5% above ₹1.25 lakh a year (long-term) |
| Debt-oriented (bought after Apr 2023) | Any period | Added to income, taxed at your slab |
| Gold and other funds | Varies by category | Check the category rule or ask a CA |
Add 4% cess on top of these rates. Tax applies to the gain, not the whole amount you withdraw. Selling ₹5 lakh that was bought for ₹4 lakh means a ₹1 lakh gain is what gets taxed.
Suppose you redeem an equity fund held for five years. You invested ₹6 lakh in total, and the value is now ₹9 lakh.
Now suppose you had spread the same exit over two financial years, taking about ₹1.5 lakh of gain in each. Each year ₹1.25 lakh is exempt, so only ₹25,000 is taxed in each year. The tax falls to roughly ₹6,250 in total, before cess. Same money, same fund, smaller bill. This only works if the timing fits your goal, so it is never a reason to delay a payment you need.
A goal plan with a glide path moves money from equity to debt and gold as the goal nears. Each shift is a redemption, so it is worth knowing the tax effect in advance. Planning goal by goal, with a separate SIP for each, also keeps the units, dates and gains for each goal easy to track. Under current rules, your tax filing should report these gains accurately, so keep your capital gains statements.
Q. Is the ₹1.25 lakh exemption per fund or per year?
A. Under current rules it applies to your total long-term equity gains in a financial year, not to each fund separately. Confirm the year's limit before filing.
Q. Do I pay tax on SIP money I am still investing?
A. No. Tax arises only when you redeem units. Each SIP instalment is treated as a separate purchase with its own holding period.
Q. Will switching from one fund to another trigger tax?
A. Yes. A switch is treated as a redemption followed by a fresh purchase, so any gain on the units you move can be taxable.
Q. Is the tax different for a senior citizen?
A. The capital gains rates above are generally the same. For debt funds taxed at slab, a senior's slab may differ, so check with a CA.
Plan Our Future · AMFI-registered Mutual Fund Distributor (ARN-360754). Mutual Fund investments are subject to market risks, read all scheme related documents carefully.