Tax on mutual fund withdrawals in India depends on the type of fund and the holding period

When you withdraw (redeem) units from a mutual fund, the tax you pay depends on:

• the type of fund (equity-oriented vs non-equity)
• how long you held the units
• the date of investment (because rules changed)

For Equity-Oriented Mutual Funds (65%+ in equity shares)

• If you redeem within 12 months of investment → it’s treated as Short-Term Capital Gains (STCG) and taxed at 20% + cess & surcharge.
• If you redeem after 12 months → it’s treated as Long-Term Capital Gains (LTCG). Gains up to ₹1,25,000 in a financial year are exempt; gains above that are taxed at 12.5% + cess & surcharge.

For Non-Equity or Debt-Oriented Funds

When you withdraw (redeem) units from a debt-oriented mutual fund (i.e., a scheme that invests primarily in debt or money-market instruments), taxation depends on when you invested and the holding period. Recently, the tax rules have changed, so accurate record-keeping is critical.

Key Rules for Debt Funds

• For units purchased on or after 1 April 2023: All gains (irrespective of how long you hold the investment) are treated as Short-Term Capital Gains (STCG) and taxed at your applicable income tax slab rate. Indexation benefit and the prior long-term capital gains (LTCG) special rates do not apply.
• For units purchased on or before 31 March 2023:
  • If you sell/ redeem within 24 months: gains will be taxed at your income-tax slab rate (STCG)
  • If you hold for longer than the threshold (more than 24 months), then the gains are treated as LTCG and taxed at a flat 12.5% (plus cess/surcharge) without indexation benefit.

Since tax rules are dynamic and subject to change, we recommend consulting your tax advisor for the latest and detailed guidance.