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Tax on Mutual Funds
Mutual funds in India are subject to specific tax rules depending on the type of fund, date of investment, and the holding period. Tax treatment differs primarily for equity, debt, and hybrid mutual funds. Below is a comprehensive overview of the latest taxation guidelines as applicable for Assessment Year 2025-26.
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Mutual Fund
- Tax on Mutual Funds
Best SIP Funds
Payment Mode
Invest
₹ 10,000
Invest for
Instant tax receipt
Large Cap Equity Fund
AUM (Cr)
₹2,780
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 21.36 %
Instant tax receipt
Instant tax receipt
Accelerator Mid-Cap Fund II
AUM (Cr)
₹5,888
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 20.77 %
Instant tax receipt
Opportunities Fund
AUM (Cr)
₹38,561
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 22.35 %
Instant tax receipt
Diversified Equity Fund
AUM (Cr)
₹3,683
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 17.55 %
Instant tax receipt
Frontline Equity Fund
AUM (Cr)
₹4,489
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 20.48 %
Instant tax receipt
Grow Money Plus Fund
AUM (Cr)
₹454
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 17.39 %
Instant tax receipt
Instant tax receipt
Instant tax receipt
Large Cap Equity Fund
AUM (Cr)
₹2,780
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 21.36 %
Diversified Equity Fund
AUM (Cr)
₹3,683
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 17.55 %
Frontline Equity Fund
AUM (Cr)
₹4,489
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 20.48 %
Grow Money Plus Fund
AUM (Cr)
₹454
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 17.39 %
Growth Super Fund
AUM (Cr)
₹13,662
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 16.87 %
Accelerator Mid-Cap Fund II
AUM (Cr)
₹5,888
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 20.77 %
Opportunities Fund
AUM (Cr)
₹38,561
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 22.35 %
Growth Opportunities Plus Fund
AUM (Cr)
₹1,025
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 19.82 %
Classic Opportunities Fund
AUM (Cr)
₹13,991
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 18.56 %
Opportunities Fund
AUM (Cr)
₹3,493
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 19.9 %
Equity Top 250 Fund
AUM (Cr)
₹557
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 16.83 %
Whole Life Income Fund
AUM (Cr)
₹849
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 6.03 %
Individual Preserver Pension Fund
AUM (Cr)
₹140
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 5.52 %
Whole Life Aggressive Growth Fund
AUM (Cr)
₹912
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 20.06 %
Save N Grow Money Fund
AUM (Cr)
₹65
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 10.61 %
Asset Allocation Fund II
AUM (Cr)
₹297
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 12.07 %
Multi Cap Balanced Fund
AUM (Cr)
₹2,027
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 12.65 %
View More
Classification of Mutual Funds for Taxation
-
Equity Mutual Funds: Funds investing at least 65% in equity and equity-related instruments.
-
Debt Mutual Funds: Funds investing more than 65% in debt instruments.
-
Hybrid Mutual Funds: Tax treatment depends on whether the equity component is above or below 65%.
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Others: Gold, international, and fund-of-fund schemes follow non-equity tax treatment.
Taxation of Equity Mutual Funds
| Holding Period | Tax Type | Tax Rate | Exemption |
| ≤ 12 months | STCG | 20% + cess | None |
| > 12 months | LTCG | 12.5% on gains above ₹1.25 lakh | ₹1.25 lakh annual threshold |
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STCG (Short-Term Capital Gains) for holding period up to 1 year are taxed at 20%.
-
LTCG (Long-Term Capital Gains) are taxed at 12.5% if units are held for more than a year. Gains up to ₹1.25 lakh in a financial year are exempt from LTCG tax.
-
No indexation benefit is available.
Taxation of Debt Mutual Funds
Investments made on or after April 1, 2023
-
All gains are taxed as per the investor’s income tax slab, irrespective of the holding period.
-
No indexation or special LTCG treatment is available.
Investments made before April 1, 2023
| Holding Period | Tax Type | Tax Rate | Notes |
| ≤ 24 months | STCG | As per slab | - |
| > 24 months | LTCG | 12.5% (no indexation) on gains above ₹1.25 lakh | No indexation benefit |
-
LTCG on these older investments is taxed at a flat 12.5% if held for more than two years, without indexation. Gains up to ₹1.25 lakh are exempt.
-
STCG (≤ 2 years) are taxed as per the individual’s income tax slab.
- Insurance Companies
- Mutual Funds
| Returns | ||||
|---|---|---|---|---|
| Fund Name | 5 Years | 7 Years | 10 Years | |
| High Growth Fund Axis Max Life | 32.5% | 21.1% |
18.6%
View Plan
|
|
| Top 200 Fund Tata AIA Life | 30.5% | 21% |
18.2%
View Plan
|
|
| Accelerator Mid-Cap Fund II Bajaj Allianz | 20.77% | 12.18% |
13.48%
View Plan
|
|
| Opportunities Fund HDFC Life | 22.35% | 14.28% |
13.41%
View Plan
|
|
| Equity II Fund Canara HSBC Life | 16.54% | 9.58% |
9.52%
View Plan
|
|
| Grow Money Plus Fund Bharti AXA | 17.39% | 12.97% |
13.01%
View Plan
|
|
| Multiplier Birla Sun Life | 22.67% | 13.96% |
14.35%
View Plan
|
|
| Equity Top 250 Fund Edelwiess Life | 16.83% | 11.21% |
10.5%
View Plan
|
|
| Opportunities Fund ICICI Prudential Life | 19.9% | 12.78% |
11.61%
View Plan
|
|
| Balanced Fund LIC India | 10.4% | - |
-
View Plan
|
|
Fund rating powered by
Last updated:
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| Returns | ||||
|---|---|---|---|---|
| Fund Name | 3 Years | 5 Years | 10 Years | |
| Active Fund QUANT | 23.92% | 31.48% |
21.87%
|
|
| Flexi Cap Fund PARAG PARIKH | 20.69% | 26.41% |
19.28%
|
|
| Large and Mid-Cap Fund EDELWEISS | 22.34% | 24.29% |
17.94%
|
|
| Equity Opportunities Fund KOTAK | 24.64% | 25.01% |
19.45%
|
|
| Large and Midcap Fund MIRAE ASSET | 19.74% | 24.32% |
22.50%
|
|
| Flexi Cap Fund PGIM INDIA | 14.75% | 23.39% |
-
|
|
| Flexi Cap Fund DSP | 18.41% | 22.33% |
16.91%
|
|
| Emerging Equities Fund CANARA ROBECO | 20.05% | 21.80% |
15.92%
|
|
| Focused fund SUNDARAM | 18.27% | 18.22% |
16.55%
|
|
Last updated: June 2025
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Hybrid Mutual Funds
-
Equity ≥ 65%: Taxed like equity mutual funds (see equity rules above).
-
Equity < 65%: Taxed like debt mutual funds.
Tax on Dividends from Mutual Funds
-
From April 2020, all dividends received from mutual funds are added to the investor’s income and taxed as per the applicable income tax slab rates.
-
There is no Dividend Distribution Tax (DDT). Recipients bear the entire tax liability.
Surcharge, Cess & TDS
-
Surcharge and Health and Education Cess (4%) are applicable to both STCG and LTCG as per income brackets.
-
For NRIs, Tax Deducted at Source (TDS) applies: 20% on capital gains from debt funds, and 10% on equity LTCG above threshold amounts.
Special Notes for 2025-26
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Capital gains rules changed from July 23, 2024: STCG rate for equity funds is now 20% (previously 15%), and LTCG rate is 12.5% (previously 10%) on amounts exceeding ₹1.25 lakh.
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The definition of debt funds was revised from April 1, 2025: Funds with >65% in debt qualify for this categorization affecting tax treatment.
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No indexation benefit on LTCG from any mutual fund purchased after April 1, 2023.
Key Takeaways
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Equity funds enjoy lower tax rates but only for gains above the exemption limit and longer holding periods.
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Debt funds have lost the advantage of indexation (except for legacy investments) and gains are generally taxed at slab rates.
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The category and the date of investment are critical for tax planning.
-
Review your fund's allocation and investment date before switching or redeeming to avoid unnecessary tax liability.
Conclusion
The tax rules for mutual funds have changed significantly for AY 2025-26. Your mutual fund returns are now taxed based on the type of fund, investment date, and holding period, with stricter rules and higher rates especially for short-term gains and debt funds. Reviewing your portfolio and understanding these new provisions are crucial for effective tax planning and maximizing after-tax returns.
FAQs
-
How is tax calculated on SIP gains?
Each SIP installment is treated as a separate investment with its own holding period. Gains are taxed as short-term or long-term capital gains as per fund type and duration. -
How are debt mutual funds taxed from April 2025?
All gains from debt mutual funds are taxed at your income tax slab rate, with no LTCG indexation or flat rate benefit for new investments made after April 1, 2023. Investments made before that date may still qualify for a 12.5% LTCG rate if held for more than two years. -
What is the tax treatment on dividends from mutual funds?
All dividends are added to your total income and taxed as per your income tax slab. There is no dividend distribution tax after April 2020. -
Are any mutual funds tax-free?
No, all mutual funds are subject to tax. However, investments in Equity-Linked Savings Schemes (ELSS) are eligible for deductions under Section 80C, up to ₹1.5 lakh per annum as per the Income Tax Act.
*All savings are provided by the insurer as per the IRDAI approved insurance
plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
++Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
˜Top 5 plans based on annualized premium, for bookings made in the first 6 months of FY 24-25. Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.
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