What is the LTCG tax rate on equity mutual funds in India?

12.5% on gains above ₹1.25 lakh per year (revised in Budget 2024). Holding period must exceed 12 months. No indexation benefit is available on equity fund LTCG.

What tax benefit does ELSS provide?

ELSS investments qualify for deduction under Section 80C up to ₹1.5 lakh per financial year. The mandatory 3-year lock-in ensures all redemptions are taxed as LTCG (12.5% above ₹1.25 lakh exemption).

Mutual Fund Taxation India: NISM V-A Rates 2026 Explained

Q: What is the STCG tax rate on equity mutual funds?

20% for units held 12 months or less (revised in Budget 2024 from 15%). STT must have been paid on the redemption transaction.

Q: How are debt mutual funds purchased after April 2023 taxed?

Gains are taxed as per the investor's income tax slab rate, regardless of holding period. The earlier 20% LTCG with indexation for 3+ year holdings no longer applies to purchases made on or after 1 April 2023.

Q: How is dividend income from mutual funds taxed?

Dividends are added to the investor's income and taxed at their applicable slab rate. TDS at 10% is deducted by the AMC if dividend income from one fund house exceeds ₹5,000 in a financial year.

Mutual fund tax rates (LTCG, STCG, Debt, ELSS) are updated for 2026. NISM V-A Chapter 8 covers rates changed in 2023 & 2024 for 4 marks.

Why Is Taxation the Most Tricky Chapter in NISM V-A?

Chapter 8 carries only 4 marks, but taxation questions have the highest failure rate. Rates changed significantly in the Union Budget 2023 and again in 2024 — candidates using outdated material get these questions wrong. This guide reflects current rules.

How Are Equity Mutual Funds Taxed?

For mutual fund schemes with more than 65% equity allocation:

STCG on Equity FundsShort-Term Capital Gain — holding period less than or equal to 12 months. Taxed at 20% (revised in Budget 2024 from 15%). STT must have been paid on the transaction.

LTCG on Equity FundsLong-Term Capital Gain — holding period more than 12 months. Gains up to ₹1.25 lakh per year are exempt (revised in Budget 2024 from ₹1 lakh). Gains above ₹1.25 lakh are taxed at 12.5% without indexation (revised from 10%).

12.5%LTCG tax rate on equity fund gains above ₹1.25 lakh per year (Budget 2024) — with no indexation benefit

How Are Debt Mutual Funds Taxed After April 2023?

The Budget 2023 fundamentally changed debt fund taxation. For debt funds purchased on or after 1 April 2023: gains are taxed as per the investor's income tax slab, regardless of holding period. The earlier 20% LTCG with indexation for 3+ year holdings no longer applies to new purchases.

Debt funds purchased before 1 April 2023 continue to be taxed under the old rules (20% with indexation for 3+ year holdings). This grandfathering distinction is directly tested on the NISM exam.

What Are the Tax Benefits of ELSS Funds?

ELSS (Equity Linked Savings Scheme) investments qualify for tax deduction under Section 80C up to ₹1.5 lakh per financial year. The 3-year lock-in means gains are always Long-Term Capital Gains — taxed at 12.5% above ₹1.25 lakh exemption. ELSS is the only mutual fund category offering 80C benefits.

Free · No spam · Unsubscribe anytime

Never miss an LTCG harvesting window

Tax-saving alerts before March 31, indexation tips, and LTCG impact breakdowns — free.

How Is Dividend Income from Mutual Funds Taxed?

Dividends received from mutual funds are added to the investor's total income and taxed at their applicable slab rate. TDS at 10% is deducted by the AMC if dividend income from a single mutual fund exceeds ₹5,000 in a financial year.

Chapter 8 Practice Questions

Q1. An investor redeems equity fund units after 14 months with a gain of ₹2 lakh. How much tax is payable?

Answer: ₹9,375. LTCG (held >12 months) = ₹2 lakh. Exempt amount = ₹1.25 lakh. Taxable gain = ₹75,000. Tax at 12.5% = ₹9,375.

Q2. A debt fund was purchased in June 2024. The investor redeems after 4 years. What tax applies?

Answer: Taxed at income slab rate. Purchased after 1 April 2023 — the new rules apply. No indexation, no 20% LTCG rate. Gains are added to income and taxed per slab.

Q3. What is the maximum 80C deduction available through ELSS investment?

Answer: ₹1.5 lakh per financial year. ELSS investments up to ₹1.5 lakh qualify for deduction under Section 80C of the Income Tax Act.

Practice all taxation scenarios — BullWiser NISM Mock Test →

BullWiser is not a SEBI-registered investment adviser. Tax rules change frequently — verify current rates with a qualified tax adviser. Full Disclaimer ↗

Continue to Chapter 9: Investor Services or back to the full NISM V-A guide.