Long-Term Capital Gains Tax (LTCG) Tax on Mutual Funds: Rates & How to Calculate 

Key Takeaways 

• LTCG tax on mutual funds depends on the fund type and holding period, so the same investment period can receive different tax treatment across schemes. 

• Equity-oriented mutual funds generally qualify for long-term treatment after more than 12 months, while other categories may follow different rules. 

• Eligible equity-oriented mutual fund gains can receive an annual ₹1.25 lakh exemption under Section 112A, subject to the applicable conditions. 

• The 2024 tax changes altered the treatment of several mutual fund categories, including the rules around rates, holding periods, and indexation.  

• A mutual fund switch can have tax implications because switching is generally treated as a redemption or transfer of the original investment. 

• Always verify the latest tax rules before redeeming units, particularly for debt and specified mutual funds. The applicable provisions can depend on the fund’s classification and acquisition date.  

The rules for LTCG tax on mutual funds changed significantly in 2024, so older articles can give you outdated answers. LTCG stands for long term capital gain, which applies when eligible mutual fund units are sold after the applicable long-term holding period. This guide explains the current rates, holding periods, annual exemption, and a simple worked calculation. The information has been checked against current Income Tax Department guidance.   

What is LTCG Tax on Mutual Funds? 

LTCG tax on mutual funds is the tax charged on a long-term capital gain earned when eligible mutual fund units are redeemed or transferred. The applicable treatment depends primarily on what the mutual fund invests in and how long you hold the units.  

Equity-oriented mutual funds have a specific long-term holding threshold and are covered by Section 112A when applicable. Other mutual fund categories can fall under different rules, including the provisions for specified mutual funds.  

You can also refer to a guide on how to file your income tax return online when reporting your capital gains.  

LTCG Tax Rates on Mutual Funds 

​​​​​​​The 2024 changes simplified the general long-term capital gains rate to 12.5% for many assets, while equity-oriented funds covered by Section 112A have a separate annual exemption. The treatment of specified mutual funds also depends on the statutory definition applicable to the investment.  

As of August 17, 2026 

Fund Type	Long-Term Holding Period	LTCG Rate	Annual Exemption
Equity-oriented mutual funds covered by Section 112A	More than 12 months	12.50%	₹1.25 lakh
Other mutual fund units where Section 112 applies	Generally more than 24 months, subject to the applicable asset classification	12.50%	No general ₹1.25 lakh Section 112A exemption
Specified mutual funds covered by Section 50AA	Depends on the applicable statutory definition and acquisition date	Taxed under applicable short-term capital gain rules	Not applicable as LTCG

The Income Tax Department’s current return guidance confirms the ₹1.25 lakh Section 112A threshold and the 12.5% rate applicable to long-term gains under the relevant provisions.  

While capital gains are taxed separately from normal income in many cases, understanding the current income tax slabs and rates can help you assess your overall tax liability.  

Long Term Capital Gain Tax on Mutual Funds: Holding Periods Explained 

• Equity-oriented mutual funds: Units generally need to be held for more than 12 months to qualify as long-term capital assets. The Income Tax Department specifically identifies units of equity-oriented mutual funds among assets with a 12-month threshold.  

• Other mutual fund categories: The applicable threshold can be different. For assets covered by the 24-month rule, holding them for more than 24 months makes them long-term. 

• Specified mutual funds: Section 50AA can result in gains being treated as short-term based on the statutory definition, so investors should not assume that every debt-oriented fund receives conventional LTCG treatment. 

Therefore, an 18-month holding period can produce different tax treatment depending on the type of mutual fund. 

Equity-oriented schemes, including what ELSS funds are, can qualify for the equity-specific capital gains treatment when the applicable conditions are met.  

Tax on Long Term Capital Gain on Mutual Fund: How It Is Calculated 

Consider an equity-oriented mutual fund where the applicable Section 112A rules apply. Suppose you bought units for ₹4 lakh and later redeemed them for ₹6 lakh. Your capital gain is ₹2 lakh. After applying the ₹1.25 lakh annual exemption, ₹75,000 remains taxable at 12.5%, before considering any applicable surcharge and cess. 

Particulars	Amount
Purchase value	₹4,00,000
Redemption value	₹6,00,000
Long-term capital gain	₹2,00,000
Section 112A exemption	₹1,25,000
Taxable gain	₹75,000
Tax at 12.5%	₹9,375

The calculation assumes the units qualify for Section 112A treatment and the exemption has not already been used against other eligible gains. When considering how mutual fund redemption works, remember that units are generally accounted for on a first-in-first-out basis, so the units sold determine the applicable holding period. 

Conclusion 

LTCG tax on mutual funds cannot be determined from the fund name alone. The applicable rate and holding period depend on what the scheme holds, how long you owned the units and which provisions apply to the gain. The rules were substantially changed in 2024, making the date of any tax information particularly important. Before redeeming investments, verify the current provisions and consider your overall tax position. Explore FatakPay for tools and resources that can help you make more informed financial decisions. 

FAQs on LTCG Tax on Mutual Funds 

What is LTCG tax on mutual funds? 

LTCG tax on mutual funds is the tax payable on eligible long-term capital gains from selling or redeeming mutual fund units. The applicable rate depends on the type of fund, holding period and relevant tax provision. Equity-oriented funds can qualify for the Section 112A exemption. 

How much LTCG is tax free on mutual funds? 

Up to Rs 1.25 lakh of eligible Section 112A long-term capital gains can qualify for the annual exemption. This exemption applies to qualifying equity-oriented investments and is not a blanket exemption for every type of mutual fund. The applicable rules should be checked before calculating your tax liability. 

What is the holding period for long-term capital gains on mutual funds? 

The holding period depends on the type of mutual fund. Equity-oriented mutual fund units generally require a holding period of more than 12 months for long-term treatment. Other categories can have different rules, while specified mutual funds may be governed by Section 50AA.  

Is indexation still available on debt mutual funds? 

Indexation is generally not available for debt mutual fund gains under the post-2024 tax framework where the applicable provisions remove that benefit. The exact treatment depends on the fund’s classification, acquisition date and applicable transitional rules, so investors should verify the provisions relevant to their specific units. 

How are long term capital gains calculated? 

Long-term capital gains are generally calculated by subtracting the eligible cost of acquisition and applicable adjustments from the redemption or transfer value. The resulting gain is then tested against the relevant exemption and tax rate. For equity-oriented funds, Section 112A provides the applicable framework where its conditions are met. 

Do I pay LTCG tax if I switch between schemes? 

Yes, a switch between mutual fund schemes can trigger a taxable capital gain because it is generally treated as a transfer or redemption of the original units. The tax treatment depends on the units being switched, their holding period and the applicable capital gains provisions.