Capital Gains Tax on Mutual Funds in India: What You Need to Know

When you sell mutual funds in India and make a profit, you owe capital gains tax, a tax on the profit made from selling an investment like mutual funds, stocks, or real estate. This tax isn’t the same for every fund—it changes based on how long you held it, what type of fund it is, and whether you’re using it for tax savings. If you sell equity mutual funds within a year, you pay short-term capital gains tax, a tax rate of 15% on profits from selling equity mutual funds held for less than 12 months. But if you hold them longer, the tax drops to 10% on gains above ₹1 lakh—no indexation, no deductions, just a clean rate.

The rules get more interesting with ELSS funds, equity-linked savings schemes that offer tax deductions under Section 80C and come with a mandatory 3-year lock-in period. Because of that lock-in, most people hold ELSS beyond the one-year mark, automatically qualifying them for the lower long-term capital gains rate. That’s why ELSS isn’t just a tax-saving tool—it’s a smart way to grow money while minimizing tax. Compare that to debt funds, where holding for more than three years gives you indexation benefits, lowering your effective tax rate. But with equity funds, indexation doesn’t apply. You pay 10% on gains over ₹1 lakh, no matter how long you’ve held it past three years.

Many investors mix up capital gains tax with dividend tax. Dividends from mutual funds are now taxed in your hands at your income tax slab rate—no TDS, no exemption. But capital gains are separate. You only pay them when you sell. That’s why timing matters. If you’re planning to exit a fund, check the calendar. Selling just before a dividend payout might look good on paper, but it could trigger a bigger tax bill. And if you’re reinvesting, remember: even if you buy back into the same fund, the original purchase date stays tied to your units. The clock doesn’t reset.

There’s also a big difference between direct and regular plans. Direct plans have lower expense ratios, which means more of your money stays invested. Over time, that small difference compounds into bigger gains—and bigger taxable amounts. But you still pay the same capital gains tax rate. The only thing that changes is your net profit. So choosing a direct plan doesn’t reduce your tax, but it gives you more profit to tax.

Don’t forget about loss harvesting. If you sold a fund at a loss this year, you can use that loss to offset gains from another fund. Short-term losses can offset short-term gains. Long-term losses can offset long-term gains. You can even carry forward unused losses for up to eight years. It’s a legal way to lower your tax bill, but you need to track your transactions carefully.

The posts below cover exactly this: how to calculate your gains, which funds trigger higher taxes, how ELSS locks in benefits, and how to plan your exits without surprise bills. You’ll find clear breakdowns of when to sell, how to use tax-saving funds wisely, and what the latest rules mean for your portfolio. No jargon. No fluff. Just what you need to keep more of your money.