Key idea
How your equity fund gains are taxed depends on how long you held them. Holding beyond a year lowers the rate and unlocks an exemption.
When you redeem an equity mutual fund (one that invests mostly in shares) for a profit, that gain is taxed as a capital gain. The rate depends on your holding period.
Equity fund gains, in brief
| Holding period | Called | Tax |
|---|---|---|
| 12 months or less | Short-term (STCG) | 20% |
| More than 12 months | Long-term (LTCG) | 12.5% above ₹1.25 lakh/year |
Gains on units held a year or less are short-term, taxed at 20%. Gains on units held beyond a year are long-term, taxed at 12.5%, but only on the amount above a ₹1.25 lakh exemption each financial year. ELSS is taxed the same way once its lock-in ends. Tax figures for FY 2026-27. The Budget can change them, so confirm the current year.
What this means in practice
The ₹1.25 lakh annual exemption means modest long-term gains can be tax- free, and the lower long-term rate rewards patience. Some investors deliberately book gains up to the exemption each year, but tax should inform decisions, not drive them.
This explains the mechanics. How tax applies to your specific case is worth confirming for yourself.
Finished reading?
Marking this complete counts today, and your streak becomes day 1.