Mutual Fund Taxation 2026 — LTCG, STCG, Debt Funds, ELSS Tax Rules | RushTax Blog

Mutual fund taxation changed significantly from FY 2024-25. Here is the complete guide for FY 2025-26 (AY 2026-27).

Equity Mutual Funds — Tax Rates

Equity mutual funds (65%+ in equity) are taxed as follows:

Type	Holding Period	Tax Rate
STCG (Short-Term Capital Gains)	Less than 12 months	20%
LTCG (Long-Term Capital Gains)	12 months or more	12.5% above ₹1.25L

Section 87A rebate: LTCG from equity MF is NOT eligible for Section 87A rebate under the new regime. Even if your total income is below ₹12L, you must pay 12.5% on LTCG above ₹1.25L.

₹1.25L exemption: The first ₹1.25L of LTCG from listed equity and equity MF is exempt. Only gains above ₹1.25L are taxed at 12.5%.

Debt Mutual Funds — Tax Rules (Post April 2023)

For debt mutual funds purchased after April 1, 2023:

All gains are taxed at your income tax slab rate
No distinction between STCG and LTCG
No indexation benefit

For debt funds purchased before April 1, 2023:

LTCG (held 36+ months): 20% with indexation
STCG (held less than 36 months): Slab rate

Hybrid Funds

Fund Type	Equity %	Tax Treatment
Equity-oriented hybrid	65%+ equity	Same as equity MF
Debt-oriented hybrid	Less than 65% equity	Same as debt MF
Balanced advantage funds	Varies	Check fund's equity allocation

ELSS (Equity Linked Savings Scheme)

ELSS funds have a 3-year lock-in period and qualify for Section 80C deduction (up to ₹1.5L).

Tax on redemption:

After 3-year lock-in: LTCG at 12.5% above ₹1.25L
The 3-year lock-in means all ELSS redemptions are LTCG

Tax benefit: ₹1.5L invested in ELSS saves up to ₹46,800 in tax (at 30% slab + cess) under the old regime.

How to Get Capital Gains Statement

Download your consolidated capital gains statement from:

CAMS: camsonline.com — for most AMCs
KFintech: kfintech.com — for some AMCs
Your broker: Zerodha, Groww, Kuvera, etc. provide consolidated statements

The statement shows:

Fund name and type
Purchase date and NAV
Redemption date and NAV
STCG and LTCG amounts

How to Report Mutual Fund Gains in ITR

File ITR-2 (or ITR-1 if LTCG from equity MF is below ₹1.25L).

In Schedule CG:

A1: STCG on equity MF (Section 111A) — 20%
B1: LTCG on equity MF (Section 112A) — 12.5% above ₹1.25L
A2/B2: Debt MF gains — slab rate

Reconcile with AIS: AIS shows all mutual fund redemptions. Cross-check your capital gains statement with AIS before filing.

SIP Taxation — Each Instalment is Separate

For SIP investments, each monthly instalment is treated as a separate purchase. When you redeem, the holding period is calculated for each instalment separately.

Example:

SIP started January 2024 (monthly ₹10,000)
Redeemed all units in February 2026
Units purchased in January 2024 → held 25 months → LTCG
Units purchased in March 2025 → held 11 months → STCG

This means a single redemption can have both STCG and LTCG components.

Dividend from Mutual Funds

Dividends from mutual funds are taxable at your income tax slab rate. TDS at 10% is deducted if dividend exceeds ₹5,000 per year.

Growth option vs dividend option: Growth option is more tax-efficient — no annual tax on dividends, only capital gains tax on redemption.

Frequently Asked Questions

Is LTCG from mutual funds taxable if my total income is below ₹12L?

Yes. LTCG from equity MF above ₹1.25L is taxed at 12.5% even if your other income is below ₹12L. The Section 87A rebate does not apply to LTCG from equity.

What is the tax on international mutual funds?

International funds (investing in foreign stocks) are treated as debt funds for tax purposes — all gains taxed at slab rate, regardless of holding period.

Do I need to report mutual fund gains if they are below ₹1.25L?

Yes. You must report all capital gains in Schedule CG, even if no tax is payable. The ₹1.25L exemption reduces taxable LTCG, but the gross LTCG must be disclosed.

Have mutual fund gains to report? I handle ITR-2 with capital gains starting ₹999. Message me on WhatsApp with your capital gains statement.