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How mutual fund taxation works across equity, debt and hybrid schemes
Mutual fund taxation depends on fund type and holding period, with equity, debt, hybrid and gold funds following distinct capital gains and dividend tax rules.
Tax treatment plays a decisive role in determining mutual fund returns, as liability arises only when units are sold, switched or redeemed. According to an Economic Times explainer, equity oriented funds held for over one year attract long-term capital gains tax of 12.5%, with gains up to Rs 1.25 lakh exempt annually, while short-term gains are taxed at 20%. Debt mutual fund gains are taxed at the investor’s income slab, irrespective of holding period. Hybrid funds follow different rules based on equity exposure, allowing some categories to qualify for equity taxation.