Money Basics · Taxes & 80C

Tax on mutual funds

The 2024 Union Budget changed capital gains tax significantly. Here's what applies to mutual funds now.

Equity mutual funds (65%+ in equity)

• Held less than 12 months: STCG at 20% (raised from 15% in Budget 2024)
• Held 12+ months: LTCG at 12.5% on gains above ₹1.25L/year (exemption raised from ₹1L)

Debt mutual funds (less than 65% equity)

Pre-April 2023: had indexation benefit. LTCG taxed at 20% with inflation adjustment.

Post-April 2023: indexation removed. Gains taxed at your income slab rate regardless of holding period.

> This made debt funds less tax-efficient than before. Same rate as an FD now, but not the same timing: FD interest is taxed every year as it accrues, whether you touch it or not, while debt-fund gains are taxed only when you redeem.

Hybrid funds

• Aggressive hybrid (65%+ equity): treated as equity fund
• Conservative hybrid (<65% equity): treated as debt fund
• Balanced advantage funds: typically 65%+ equity → equity tax treatment

Gold funds and international funds

The 2023 rules swept both into the debt treatment; the 2024 change pulled them back out. Both now reach a 12.5% long-term rate, without indexation. After 24 months, because their units aren't listed. A listed gold ETF gets there in 12.

12.5%LTCG rate for equity funds held 12+ months

Slab rateWhat debt fund gains are now taxed at

Practical guidance

• For long-term wealth: equity index funds (12.5% LTCG + ₹1.25L exemption) are still very tax-efficient
• For 1–3 year parking: liquid funds, arbitrage funds (equity tax treatment but low-volatility), or bank FDs, compare post-tax returns
• Harvest LTCG up to ₹1.25L each year to reset cost basis tax-free

Takeaway. Budget 2024: equity funds LTCG at 12.5%, STCG at 20%. Debt funds now taxed at slab rate regardless of holding period. Equity funds remain the most tax-efficient long-term vehicle.