Mutual Fund Tax in India — Equity & Debt MF Guide FY 2025-26

Equity mutual funds — how they're taxed

Equity mutual funds (including ELSS, index funds, and balanced funds with 65%+ equity) are taxed like stocks:

Debt mutual funds — taxed at slab rate

Since April 1, 2023, debt mutual funds (including liquid funds, FMPs, corporate bond funds) lost the LTCG + indexation benefit they had before. Now:

• All gains from debt MF redemptions are taxed at your income slab rate
• No distinction between short-term and long-term for tax purposes
• Applies to all purchases made on or after April 1, 2023

SIP investments — each instalment is separate

Each SIP instalment is treated as a separate purchase with its own buy date. When you redeem units, each instalment's holding period is calculated independently:

• SIP started Jan 2023, redeemed Jan 2025 → first instalment: 2 years held (LTCG 12.5%), last instalment: <12 months (STCG 20%)
• Each instalment needs separate gain/loss calculation
• FIFO (first in, first out) applies by default for MF redemptions

Your broker's Tax P&L statement or capital gains statement does this calculation for you — always use it instead of calculating manually.

ELSS — double benefit

Equity Linked Savings Scheme (ELSS) funds give you:

• Section 80C deduction up to ₹1.5 lakh (reduces taxable salary income, old regime only)
• Mandatory 3-year lock-in period
• After lock-in, gains taxed at 12.5% LTCG (since held >12 months)

Which ITR form?

Any mutual fund redemption — profit, loss, or zero gain — requires ITR-2. You cannot use ITR-1 if you redeemed mutual funds during the year.

Documents you need

• AIS (Annual Information Statement) — shows all MF redemptions from all platforms
• Capital Gains statement — from Kuvera, Groww, Paytm Money, Zerodha Coin, or your AMC directly
• Statement of Account from your registrar (CAMS or KFin Technologies) covers all your MF investments across all AMCs