Investing in mutual funds? This is your tax reckoner for 2025-2026

Understand the updated tax rates for mutual fund investments under the Finance Bill 2025. Explore the tax implications for resident investors and NRIs

Post Budget 2025, the distinction between long-term and short-term capital gains remains crucial, especially for those invested in various mutual fund schemes. This distinction impacts the tax rates that investors will face when they redeem or sell their investments. Here’s a detailed look at how these gains will be taxed for different types of investors.  The rates are applicable for the financial year 2025-26 subject to enactment of Finance Bill, 2025 

 

Source: Tata MF.  1. Long-Term Capital Gains Tax

 

Equity-Oriented Schemes: For investors in equity-oriented mutual funds (which invest at least 65% of their funds in listed domestic equity shares), long-term capital gains are defined as gains on assets held for more than 12 months. These will be taxed at 12.5%, subject to changes for certain specified mutual funds.

 

 

Other Than Equity-Oriented Schemes: For non-equity-oriented schemes, the holding period to qualify as a long-term capital gain increases to 24 months. Any gains from these schemes held for more than 24 months will be taxed at the same 12.5% rate.

 

2. Short-Term Capital Gains Tax

 

Equity-Oriented Schemes: If you sell or redeem your equity-oriented mutual fund investment before the 12-month mark, it will be subject to short-term capital gains tax at 20%.

Other Than Equity-Oriented Schemes: If you sell or redeem before 12 months, applicable slab rates will apply.  Income-tax implications on income in respect of units of a Mutual Fund 

 

Resident Investor - Withholding Tax Rate of 10%

For a resident investor in India, any mutual fund income or capital gains (either long-term or short-term) will be subject to a 10% withholding tax rate. This means that when a resident investor receives income or capital gains from mutual fund investments, the tax authorities will deduct 10% at source before the investor receives the proceeds.

 

Example: If a resident investor earns Rs 1,00,000 as long-term capital gains from a mutual fund, a 10% withholding tax (Rs 10,000) will be deducted, and the investor will receive Rs 90,000 after tax.This rate is applied uniformly for all types of mutual funds, whether equity-oriented or non-equity-oriented.

 

Non-Resident Indian (NRI) - Withholding Tax Rate of 20% or as per Tax Treaty

For an NRI investor, the withholding tax rate is higher at 20%. However, there's an important consideration: NRIs can benefit from tax treaties (also known as Double Taxation Avoidance Agreements or DTAA) that India has signed with other countries. Under such treaties, the tax rate on capital gains or mutual fund income may be reduced to a lower rate, depending on the specific agreement between India and the NRI's home country.

 

Example: If an NRI investor earns Rs 1,00,000 from a mutual fund, the default tax deduction would be 20% (Rs 20,000), but if there is a tax treaty between India and the NRI's country, the withholding rate could be lower. 

Income tax rates

For Individuals, Hindu Undivided Family, Association of Persons, Body of Individuals and Artificial juridical persons

Source: Tata MF  Securities Transaction Tax (STT) 

  Capital Gains: