Long Term Capital Gains (LTCG) applies to mutual fund investments held beyond the specified holding period. Budget 2024 revised LTCG rates significantly. Here is what every Indian mutual fund investor needs to know.
LTCG Holding Period by Fund Type
Equity Mutual Funds (including equity ETFs): Held more than 12 months = LTCG. Debt Mutual Funds: All gains taxed at slab rate (no LTCG category since Finance Act 2023). Hybrid Funds (65%+ equity): Same as equity — 12 months for LTCG. Non-equity hybrid and international FOFs: Taxed at slab rate regardless of period.
LTCG Tax Rate: Budget 2024 Changes
Equity fund LTCG rate: Increased from 10% to 12.5% (effective July 23, 2024). LTCG exemption limit: Increased from ₹1 lakh to ₹1.25 lakh per financial year. Gains up to ₹1.25 lakh: Completely tax-free. Gains above ₹1.25 lakh: Taxed at flat 12.5% with no indexation benefit (indexation was already removed for equity funds earlier).
LTCG Calculation Example
You invested ₹5 lakh in an equity fund 2 years ago. Current value: ₹7.5 lakh. LTCG = ₹2.5 lakh. Exempt portion: ₹1.25 lakh. Taxable LTCG: ₹1.25 lakh. Tax at 12.5%: ₹15,625. Plus 4% cess: ₹625. Total tax: ₹16,250 on ₹2.5 lakh gain — effective tax rate of 6.5%. Excellent!
LTCG Tax Harvesting
Use your ₹1.25 lakh annual exemption strategically. Each April, redeem equity fund units where LTCG is approximately ₹1.25 lakh and immediately reinvest. This resets your cost basis upward and avoids a large tax bill at final redemption. Done consistently over 20 years, tax harvesting can save ₹5–15 lakh in taxes on a large corpus.
Frequently Asked Questions
Q1.When does the 12-month LTCG holding period start for SIP?
The 12-month period is counted from the date of each individual SIP purchase. SIP investments are first-in-first-out (FIFO) for tax purposes. A SIP started in January 2023 becomes LTCG-eligible in January 2024. When you redeem, the oldest units are redeemed first. Your AMC's capital gains statement shows the exact tax breakdown for each redemption.
Q2.Is there any way to avoid LTCG on mutual funds?
You can minimise but not entirely avoid LTCG if your gains exceed ₹1.25 lakh/year. Strategies: (1) Annual tax harvesting to use the ₹1.25L exemption each year; (2) Spread redemptions across financial years; (3) Invest in the name of family members (each person gets their own ₹1.25L exemption); (4) Invest in ELSS (gains are LTCG but you already got 80C benefit).
Q3.Is LTCG on mutual funds applicable for NRIs?
Yes — NRIs pay LTCG at 12.5% on equity fund gains. However, TDS (Tax Deducted at Source) is applicable for NRIs — 12.5% TDS is deducted automatically on equity LTCG redemptions. NRIs can claim DTAA (Double Taxation Avoidance Agreement) benefits to avoid being taxed twice in their country of residence. File ITR in India to claim any TDS refund.
Everything You Need to Know About LTCG On Mutual Fund
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Disclaimer: This guide is for educational purposes only and does not constitute financial advice. Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing. Past performance does not guarantee future results. Qurve Wealth is an AMFI Registered Mutual Fund Distributor (ARN-356292).