New Tax Reforms in Mutual Funds

In FY 2025–26, India introduced new mutual fund tax rules: short-term capital gains on equity mutual funds are taxed at 20%, and long-term gains at 12.5%. Debt mutual funds no longer enjoy indexation benefits.

Here’s a breakdown of the latest mutual fund taxation updates effective from July 2024 onward:

🧾 1. Equity Mutual Funds (STT Paid)

• Short-Term Capital Gains (holding ≤ 12 months):
  Tax Rate: 20% for residents and non-residents
  TDS: NIL for residents; 12.5% for non-residents
• Long-Term Capital Gains (holding > 12 months):
  Tax Rate: 12.5% for residents and non-residents
  TDS: NIL for residents; 12.5% for non-residents

These rates apply to equity-oriented schemes where Securities Transaction Tax (STT) is paid on redemption.

💼 2. Debt Mutual Funds (Investments Made On or After April 1, 2023)

• No Indexation Benefit: Gains are now taxed as short-term capital gains, regardless of holding period.
• Tax Rate: As per the investor’s income slab for residents
  For non-residents: 20% flat rate
• Applies to funds with >35% debt allocation.

🌍 3. International & Gold Mutual Funds

• Treated similarly to debt mutual funds.
• No indexation, taxed at slab rates for residents and flat 20% for non-residents.

💸 4. Income Distribution (IDCW Option)

• Resident Investors: Taxed as per slab rates
  TDS: 10% if income distributed exceeds ₹10,000 in a financial year
• Non-Resident Investors: Flat 20% tax, with 20% TDS

📅 Transitional Rule for FY 2024–25

If you redeemed mutual fund units before July 23, 2024, old capital gains rules apply. Post that date, new rules are enforced.

🔍 What This Means for Investors

• Equity funds remain attractive, but the higher short-term tax rate encourages longer holding.
• Debt funds lose tax efficiency, making fixed deposits and other instruments more competitive.
• Strategic planning around redemption dates and fund types is now more critical than ever.

Would you like a table comparing pre- and post-2024 tax rules or a visual guide for client education? I can tailor it for Persentile’s branding.