Capital Gains Tax on Mutual Funds
When you redeem mutual fund units at a profit, you earn capital gains which are taxable. The tax rate depends on the fund type and holding period.
Equity Funds Taxation
| Type | Holding Period | Tax Rate |
|---|---|---|
| STCG (Short Term) | < 12 months | 20% |
| LTCG (Long Term) | > 12 months | 12.5% (above ₹1.25L) |
Debt Funds Taxation
| Type | Holding Period | Tax Rate |
|---|---|---|
| STCG | < 36 months | As per income slab |
| LTCG | > 36 months | 20% with indexation |
ELSS - Tax Saving Funds
💰
Section 80C Deduction
ELSS (Equity Linked Savings Scheme) offers tax deduction up to ₹1.5 lakh under Section 80C.
- • 3-year lock-in period (shortest among 80C options)
- • Pure equity funds with growth potential
- • LTCG tax exemption up to ₹1.25 lakh/year
SWP & Taxation
Good News: SWP withdrawals are treated as redemptions, not income. You only pay tax on the capital gains portion, not the entire withdrawal amount.
📈 Example
If you withdraw ₹10,000 and your gain is ₹2,000, you only pay tax on ₹2,000, not the full ₹10,000.
💡 Tip
Start SWP after 1 year for equity funds to benefit from lower LTCG rates.
Tax-Efficient Investing Tips
- 1Hold equity funds for 12+ months for LTCG benefits
- 2Use indexation benefit for debt funds held 36+ months
- 3Invest in ELSS for Section 80C tax savings
- 4Harvest losses to offset gains (tax-loss harvesting)