Mutual Fund Taxation in 2025: LTCG, STCG, and Indexation Explained | CapitalKeeper
By CapitalKeeper | Pre Market Opening | Indian Equities | Market Moves That Matter
Mutual Fund Taxation in 2025: LTCG, STCG & Indexation Rules Explained
Taxation can significantly impact your net mutual fund returns. In 2025, capital gains tax rules for mutual funds remain segmented by fund type (equity vs debt) and holding period. Here’s a comprehensive guide to help you plan and optimize taxes.
1. Types of Capital Gains
- Short-Term Capital Gains (STCG):
- Gains from funds sold before 12 months (equity) or before 36 months (debt).
- Long-Term Capital Gains (LTCG):
- Gains from funds held beyond 12 months (equity) or beyond 36 months (debt).
2. Tax Rates for Equity Mutual Funds (2025)
| Holding Period | Tax Type | Rate |
|---|---|---|
| Up to 12 months | STCG | 15% flat |
| Above 12 months | LTCG | 10% (above ₹1 lakh exemption) |
3. Tax Rates for Debt Mutual Funds (Post-2023 Rules)
Important: Indexation benefit removed for debt funds in April 2023.
| Holding Period | Tax Type | Rate (2025) |
|---|---|---|
| Up to 36 months | STCG | As per income tax slab |
| Above 36 months | LTCG | As per income tax slab (no indexation) |
4. Tax on Hybrid Funds
- Equity-Oriented Hybrid Funds: Taxed like equity (if equity >65%).
- Debt-Oriented Hybrid Funds: Taxed like debt (as per income slab).
5. Dividend Distribution Tax (DDT)
- Dividends are taxed in the hands of investors as per income slab.
- No separate DDT by AMC; TDS applicable above ₹5,000/year.
6. Pro-Tips to Optimize Tax
- Use SIP mode to stagger exits and utilize ₹1 lakh LTCG exemption annually.
- Prefer equity-oriented hybrids for tax efficiency.
- Align holding periods to benefit from LTCG rates.
7. Tax Filing Tips
- Report capital gains via ITR-2 or ITR-3 (for traders).
- Use broker statements or CAMS/KFintech CAS to compute gains.
Internal Links for Context
- ELSS vs PPF: Tax-Saving Options Explained
- Hybrid Funds: Balance Risk and Safety
- SIP vs Lumpsum: Which is Tax-Efficient?
Plan Your Taxes Smartly in 2025!
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Free Tools to Help You:
- SIP Calculator – Project SIP growth post-tax
- Lumpsum Calculator – Estimate long-term gains
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