Capital Gains Tax is the tax on profit earned from selling a mutual fund investment — categorised as Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG) based on the holding period.
When you sell a mutual fund at a profit, the gain is subject to capital gains tax. The rate and treatment depend on two factors: (1) the type of fund (equity or debt) and (2) how long you held it (short term vs long term). As per the Budget 2024 changes (effective July 23, 2024): Equity funds LTCG (held >12 months): 12.5% above ₹1.25 lakh annual gains. Equity STCG (held ≤12 months): 20%. Debt funds (held any period, for investments after April 1, 2023): taxed at slab rate (no LTCG/STCG distinction for new investments).
You make a profit when you sell a mutual fund above its purchase price. The government takes a share of that profit — the capital gains tax. For equity funds: hold for more than 1 year → pay 12.5% on gains above ₹1.25 lakh (LTCG). Hold for less than 1 year → pay 20% on total gains (STCG). For debt funds (post-April 2023): all gains taxed at your income tax slab rate, regardless of holding period.
Equity fund held > 12 months: LTCG at 12.5% (first ₹1.25 lakh tax-free each year).
Equity fund held ≤ 12 months: STCG at 20%.
Debt fund (post-April 1, 2023): all gains at income slab rate (10%/20%/30% depending on your bracket).
Debt fund (pre-April 1, 2023 investments): old rules with indexation for 2+ year holdings still apply.
Each SIP instalment has its own holding period — the date of each SIP starts a new clock.
You invested ₹5,00,000 in an equity fund 2 years ago. Current value: ₹8,00,000. Total LTCG = ₹3,00,000. Tax: First ₹1,25,000 → tax-free. Remaining ₹1,75,000 × 12.5% = ₹21,875 tax payable. Net profit after tax = ₹3,00,000 − ₹21,875 = ₹2,78,125.