Key takeaways
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Equity funds: 20% STCG (under 1 year) or 12.5% LTCG above ₹1.25 lakh (over 1 year)✓
Debt funds: all gains taxed at your income slab rate — same as FD✓
LTCG up to ₹1.25 lakh per year on equity funds is completely tax-free✓
Each SIP instalment has its own 1-year clock for LTCG eligibility✓
Tax-loss harvesting before March 31 is legal and reduces your tax bill👨💻
AmitAge 36·IT manager, Hyderabad
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I made ₹4 lakh profit selling my mutual funds. How much tax do I owe?
Amit held an equity fund for 14 months. His answer depends on one key number: ₹1.25 lakh — the annual LTCG exemption. His calculation turns out simpler than he expected.
The complete tax table for mutual funds (2024–25)
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Amit's tax calculation — step by step
Amit sold equity funds held for 14 months.
Total profit: ₹4,00,000
Step 1: Subtract LTCG exemption
₹4,00,000 − ₹1,25,000 = ₹2,75,000 taxable gain
Step 2: Apply 12.5% LTCG rate
₹2,75,000 × 12.5% = ₹34,375 tax
Plus 4% health & education cess = ₹1,375
Total tax: ₹35,750
And not ₹1,20,000 (30% rate) as he feared — because long-term equity gains are taxed favourably.
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The 2023 debt fund tax change — what changed
Before April 1, 2023: Debt funds held 3+ years got LTCG at 20% with indexation benefit. This was significantly better than FD interest (taxed at slab rate).
After April 1, 2023: ALL debt fund gains are taxed at your slab rate — 5%, 20%, or 30%. No holding period benefit.
If you are in the 30% bracket, debt funds now have almost identical tax treatment to FDs. The advantage is gone. This changes the case for debt funds significantly.
SIP taxation — each instalment is a separate purchase
This is the most misunderstood part of mutual fund taxation.
When you sell SIP units, FIFO (First In First Out) applies: oldest units are considered sold first.
Example: You have done a SIP since January 2023. You sell all units in March 2025.
• January 2023 to February 2024 instalments: more than 12 months old → LTCG rate
• March 2024 to March 2025 instalments: less than 12 months old → STCG rate
Your sale is effectively split into two tax buckets automatically.
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Tax-loss harvesting before March 31 — how to do it
If you have any mutual fund in loss AND another fund with gains in the same year:
Sell the loss-making fund before March 31. The loss offsets the gain.
Example:
• Fund A: ₹80,000 gain (LTCG)
• Fund B: ₹40,000 loss (LTCG)
Sell both before March 31.
Net taxable gain: ₹80,000 − ₹40,000 = ₹40,000.
This is below the ₹1.25 lakh exemption → zero tax.
Reinvest the Fund B money immediately in the same or similar fund. The short 'break' does not hurt your long-term position.
Tax saved by holding equity funds just past 12 months
⚠Educational content only. Numbers shown are illustrative — actual returns vary. This is not investment advice. Consult a SEBI-registered financial advisor before investing.
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