Understanding LTCG on Mutual Funds
When you hold mutual funds for a long period and sell them at a profit, you trigger Long-Term Capital Gains (LTCG) tax. LTCG simply means a profit on something you held for the "long term" (more than 12 months for equity funds). The rules depend heavily on whether you invested in an equity fund or a debt fund.
Quick stat: Equity LTCG is taxed at 12.5% and the annual exemption was raised from Rs 1 lakh to Rs 1.25 lakh per financial year (Source: Budget, July 2024).
Equity Mutual Funds
An equity mutual fund invests at least 65% of its assets in domestic equity shares. - Holding Period: More than 12 months. - Tax Rate: 12.5% (plus cess). - The Exemption: The best part about equity LTCG is the exemption limit. The first ₹1.25 lakh of your combined long-term capital gains (from equity shares and equity mutual funds) in a financial year is completely tax-free. You only pay 12.5% tax on the gains above ₹1.25 lakh.
Example: You made a long-term profit of ₹2,00,000 from selling equity mutual funds. - Tax-free amount: ₹1,25,000 - Taxable amount: ₹75,000 - Tax payable: 12.5% of ₹75,000 = ₹9,375 (plus cess).
Debt Mutual Funds
The rules for debt mutual funds changed significantly recently. - Bought before April 1, 2023: If held for more than 36 months, LTCG is taxed at 20% with indexation benefits. - Bought on or after April 1, 2023: The concept of LTCG and indexation has been removed. All gains, regardless of how long you hold the fund, are added to your total income and taxed at your slab rate (like a fixed deposit).
Filing your ITR
Selling mutual funds means you must file ITR-2 or ITR-3. You cannot use ITR-1.
When reporting equity LTCG, you must provide details of each fund sold, including the ISIN, purchase date, sale date, and values. This is required to calculate the grandfathering benefits (if applicable) and the ₹1.25 lakh exemption.
Make it easy with LastMinute ITR Don't stress over ISINs and grandfathering calculations. LastMinute ITR allows you to upload your CAMS or KFintech capital gains statement. We parse the data, apply the ₹1.25 lakh exemption correctly, and give you a clean summary to plug into incometax.gov.in.
What you should do
- Download your CAMS or KFintech consolidated capital gains statement, not just an account summary.
- Pool all equity LTCG across funds, then apply the single Rs 1.25 lakh exemption once for the year.
- Check the buy date for every debt fund to know if old indexation rules or slab-rate taxation applies.
Common mistake
Claiming the Rs 1.25 lakh exemption per fund. It is a single combined limit across all equity shares and equity funds for the whole financial year, not per scheme or per folio.
Start with LastMinute ITR · import your capital gains statement · reconcile AIS gaps.
Always check your AIS to ensure the mutual fund sales reported by the AMC match your calculations!