Tax on Mutual Funds FY 2025-26 explains how capital gains and dividend income from equity, debt, and hybrid mutual funds are taxed under current income tax rules.
Taxation for mutual funds in FY 2025-26 depends on the category of the fund (Equity, Debt, or Hybrid) and the date of purchase
The Article on ” TAX PLANNING FOR FY 2025-26 CONTAINS 11 PARTS
PART I: MAJOR CHANGES IN TAX RULES FOR FY 2025-26
PART 2 : TAX SLABS /RATES FOR FY 2025-26
PART 3 : TAX REBATES FOR FY 25-26
PART 4 : CAPITAL GAIN TAX FOR FY 2025-26
PART 5 : TAX ON SALE OF RESIDENTIAL PROPERTY
PART 8 : INCOME TAX CALCULATOR FOR FY 2025-26
PART 9 : TAX ON RETIREMENT BENEFITS FOR FY 2025-26
PART 10 : HOW TO PAY INCOME TAX ONLINE?
PART 11 : TO KNOW ALL ABOUT TDS RATES ,
PART 6 : TAX ON MUTUAL FUNDS FOR FY 2025-26
To know what is Mutual Fund , read here
The tax rates for capital gains on Mutual Funds are the same in both the New and Old Tax Regimes, as these are “special rates” that operate outside the standard income tax slabs .
1. Equity-Oriented Mutual Funds
(Funds with 65 %or more exposure to domestic equity)
| Feature | Details |
| Short-Term (STCG) | Held for 12 months or less. |
| STCG Tax Rate | 20% |
| Long-Term (LTCG) | Held for more than 12 months. |
| LTCG Tax Rate | 12.5% |
| Tax-Free Limit | First ₹1.25 Lakh of total LTCG (from stocks + MFs) per year is exempt. |
| Indexation | No indexation allowed. |
2. Debt-Oriented Mutual Funds
(Funds with less than 35% exposure to domestic equity)
The taxation here depends strictly on when you bought the units:
- Purchased on or after April 1, 2023:
- Tax Rate: All gains (regardless of holding period) are taxed as per your Income Tax Slab Rate.7
- Treatment: There is no “Long-Term” benefit. These are treated as “Specified Mutual Funds.”
- Purchased before April 1, 2023:
- Short-Term: Held for 24 months or less Taxed at Slab Rate.11
- Long-Term: Held for 24 months or more Taxed at 12.5% (without indexation )
3. Hybrid, Gold, and International Funds
(Funds with equity exposure between 35% and 65% )
| Holding Period | Classification | Tax Rate |
| Up to 24 months | Short-Term | Taxed at your Slab Rate |
| More than 24 months | Long-Term | 12.5% (No indexation) |
4. Important Rules for FY 2025-26
- Dividend Income: If you have opted for the “IDCW” (Income Distribution cum Capital Withdrawal) plan, the dividends are added to your total income and taxed at your Slab Rate (Old or New).
- TDS on Dividends: AMCs deduct 10% TDS if your dividend income from that specific AMC exceeds ₹5,000 in a financial year.
- Section 87A Rebate: Under the New Regime, the tax-free rebate (up to ₹12 Lakh income) generally does not apply to capital gains taxed at special rates (like the 20% STCG or 12.5% LTCG). You must pay tax on these gains even if your total income is low.
- Surcharge Capping: For all types of capital gains, the surcharge for individuals is capped at 15% regardless of which regime you choose
SUMMARY :
| Fund Category | Short Term (Holding) | STCG Rate | Long Term (Holding) | LTCG Rate |
| Equity MFs | 12 months | 20% | > 12 months | 12.5%* |
| Debt MFs (Post-2023) | Any period | Slab Rate | N/A | Slab Rate |
| Hybrid / Gold / Intl | 24 months | Slab Rate | > 24 months | 12.5% |
THIS ARTICLE CARRIES INFORMATION ON VARIOUS TAX PROVISIONS WHICH ARE GENERALLY USEFUL .YET IT DOES NOT CARRY ALL THE PROVISIONS AND HENCE YOU ARE ADVISED TO GO THROUGH INCOME TAX DEPARTMENT WEBSITES FOR AUTHENTIC COMPLETE INFORMATION ,ESPECIALLY FOR THOSE WHO HAVE GOT MULTIPLE STREAMS OF INCOME OR COMPLEX INVESTMENTS .YOU MAY ALSO CONSULT A QUALIFIED TAX CONSULTANT / CHARTERED ACCOUNTANT FOR ANY CLARIFICATION. READERS ARE ALSO WELCOME TO SEND FEEDBACK , FORM AVAILABLE BELOW. WE ARE OPEN FOR CORRECTION IF NEEDED
This article is for informational purposes only. It summarises updates from publicly available sources and AI-generated insights. We have extensively used information gathered from a reputed AI app in preparing this article We are not SEBI-registered investment advisors, and this content does not constitute investment advice