New Mutual Fund Taxation Rules (FY 2024-25)

The recent Budget has proposed big changes in the Indian Mutual Fund Tax Rules (2024). Based on the type of mutual funds, here are the taxation rules:

Let me explain this table in simple words:

• Equity Funds – The Long Term Capital Gains (or LTCG) Tax is 12.5% without indexation. To qualify as long-term, the holding period should be more than 12 months. The first Rs 1.25 lakh of LTCG gains in a year are tax-free. Anything less than 12 months will be considered short-term. The Short-Term Capital Gains (or STCG) Tax is 20% without indexation.
• Foreign Equity Funds (which are bought before or after 1^st April 2023) – The Long Term Capital Gains (or LTCG) Tax is 12.5% without indexation. To qualify as long-term, the holding period should be more than 24 months. Anything less than 24 months will be considered short-term. The Short Term Capital Gains (or STCG) Tax is as per the Individual’s Tax Slab. Do note that this tax reduction to 12.5% will start from April 2025. Until then, any redemptions from these will attract a tax at the individual’s applicable tax slab.
• Debt Funds – The Long Term Capital Gains (or LTCG) Tax is 12.5% without indexation. To qualify as long-term, the holding period should be more than 24 months. Anything less than 24 months will be considered short-term. The Short Term Capital Gains (or STCG) Tax is as per the Individual’s Tax Slab.

So basically, there is some simplification of the mutual fund taxation compared to earlier (table above).

Now to be sure and have no doubts about what exactly these fund categories mean, here is a short primer.

As per Budget 2024, i) Equity Mutual Funds are funds that hold more than 65% of its portfolio in Indian stocks. For FOFs or Fund Of Funds, the condition changes to a minimum of 90% of assets should be invested in Indian equities (like via equity ETFs). The ii) Debt Mutual Funds are funds that hold more than 65% of its portfolio in Bonds or Money Market instruments. Any funds that don’t fall under the previous two buckets will be part of the iii) Other Mutual Funds basket.