How does taxation work for my mutual fund investments?

You pay tax on a mutual fund only when money comes back to you, either when you redeem units or when the scheme pays out an IDCW. Growth inside the fund is not taxed. What you pay depends on two things: what the scheme holds, and how long you held the units. Equity-oriented schemes are taxed at 20% if you redeem within 12 months, and at 12.5% on gains above ₹1.25 lakh a year if you redeem after that. Most debt schemes bought on or after 1 April 2023 are taxed at your income tax slab rate however long you hold them.

When do I actually pay tax on a mutual fund?

Two events create a tax liability:

• You redeem units. The profit between what you paid and what you received is a capital gain. Until you redeem, a rise in NAV is an unrealised gain and nothing is due.
• The scheme pays you an IDCW. Income Distribution cum Capital Withdrawal, what most people still call a dividend, is taxable in the year you receive it.

Switching between schemes counts as a redemption, even though no money reaches your bank. So does moving from regular to direct plan. The tax applies the same way.

What decides my tax rate?

Every redemption falls into a tax bucket set by what the scheme invests in, and each bucket has its own long-term threshold:

Redeem before the threshold and it is a short-term capital gain (STCG); redeem after it and it is a long-term capital gain (LTCG). If those terms are new to you, start with what are short term capital gains and long term capital gains. Rupeezy sorts every redemption into one of these four buckets on your mutual fund capital gains report.

How are equity funds taxed?

Equity-oriented schemes, including equity ETFs, arbitrage funds and aggressive hybrids that keep at least 65% in Indian equities:

• Redeemed within 12 months (STCG): 20%, plus surcharge and cess.
• Redeemed after 12 months (LTCG): the first ₹1.25 lakh of long-term gains in a financial year is exempt. Anything above that is taxed at 12.5%, with no indexation.

The ₹1.25 lakh exemption is per financial year across all your equity long-term gains, not per scheme and not per folio.

You also pay Securities Transaction Tax of 0.001% on the redemption value of equity-oriented units. It is deducted at source, so it never appears as a separate bill.

How are debt funds taxed?

Which rule applies depends on when you bought the units, not on when you redeem them. There are three cases, and one portfolio can hold all three at once.

Units bought on or after 1 April 2023. These are specified mutual funds, and the long-term category does not exist for them. The whole gain is added to your income and taxed at your slab rate, whether you held the units for two months or six years. No indexation, and no 12.5% option.

Units bought before 1 April 2023, redeemed on or after 23 July 2024. The two-tier treatment survives:

• Redeemed within 24 months, slab rate.
• Redeemed after 24 months, 12.5% without indexation.

Units bought before 1 April 2023, redeemed before 23 July 2024. The pre-Budget rule applied: slab rate within 24 months, and 20% with indexation after that. This matters now only if you are revisiting a return for FY 2024-25 or earlier.

If you hold units from both sides of the April 2023 cut-off, a debt SIP that ran across that date being the common case, each instalment keeps its own purchase date and is taxed under the rule for that date. A single redemption can therefore produce slab-rate gains and 12.5% gains at the same time, and your capital gains report splits them.

Pre-cut-off units reach a Rupeezy portfolio two ways: you bought them here before April 2023, or you brought them in with Track External Fund, which carries across each holding's original purchase date.

How are hybrid, gold and international funds taxed?

These follow the equity rule or the debt rule depending on what the scheme actually holds:

• Equity-oriented hybrids (at least 65% in Indian equities: aggressive hybrid, balanced advantage, arbitrage, equity savings) are taxed exactly like equity funds: 20% short-term, 12.5% long-term above ₹1.25 lakh.
• Debt-oriented hybrids such as conservative hybrid funds follow the debt rules above.
• Multi-asset allocation funds are judged on their actual equity allocation. Cross 65% in Indian equities and the scheme is taxed as equity; below that, as a non-equity scheme.
• Gold and silver fund-of-funds turn long-term after 24 months, taxed at 12.5% without indexation. Units redeemed in FY 2023-24 or FY 2024-25 were treated as short-term at slab rate however long they had been held, but that no longer applies.
• International funds hold no Indian listed equity, so they never qualify as equity-oriented. Slab rate within 24 months, 12.5% after.

If you are not sure which bucket a scheme falls into, open its page in the Rupeezy app and look at Holding Pattern. The Assets tab there breaks down what the fund actually holds. See how to check mutual fund scheme details.

Does indexation still apply?

Not to mutual funds, not any more. Indexation let you raise your purchase cost by the Cost Inflation Index before working out a long-term gain, so you were taxed only on the growth that beat inflation.

For every redemption made on or after 23 July 2024, indexation is gone from all mutual fund categories. Long-term gains are computed on your actual cost, at the lower 12.5% rate that replaced the older 20%-with-indexation treatment.

That trade cuts both ways. A debt fund held through a high-inflation stretch could well have paid less tax under the old 20%-with-indexation rule than it does at a flat 12.5%. A fund whose gain comfortably outran inflation usually pays less now.

Redemptions made before 23 July 2024 still used indexation, at 20%, so it remains relevant if you are looking back at an older return. For mutual funds there is no option to pick between the two treatments. The cut-off date decides it.

What is grandfathering, and does it affect my equity gains?

Long-term gains on equity were entirely tax-free until 31 January 2018. When the tax came in, the gains you had already built up by that date were protected, or grandfathered, so you are not taxed on growth that happened while the exemption was still in force.

It applies only to equity units bought before 1 February 2018. For those, your cost of acquisition is not simply what you paid. It is the higher of:

• what you actually paid, and
• the lower of the unit's NAV on 31 January 2018 and your eventual sale value.

In practice the 31 January 2018 NAV usually becomes your cost, so only the gain after that date is taxed. The second limb matters when a fund has fallen: if you sell below the 31 January 2018 NAV, the formula caps the cost at your sale value, so the rule cannot manufacture an artificial loss.

You do not have to work any of this out. Rupeezy's capital gains report applies the formula to every pre-February-2018 equity lot automatically. Units bought on or after 1 February 2018 are untouched by it, and your actual cost stands.

How is IDCW income taxed?

An IDCW payout is added to your income under Income from Other Sources and taxed at your slab rate. There is no separate concessional rate and no exemption limit.

The AMC deducts TDS at 10% once your IDCW from that fund house crosses ₹10,000 in a financial year (this threshold was ₹5,000 until 31 March 2025). The ₹10,000 is counted per fund house, not across your whole portfolio. Report the gross payout in your return and claim credit for the TDS deducted.

An IDCW is not free money. It is paid out of the scheme's NAV, which drops by the same amount. A growth-option holding taxes only what you actually redeem, which is why growth is usually the more tax-efficient option if you don't need the income.

Does a SIP change how I am taxed?

No. A SIP is taxed exactly like a lumpsum, but each instalment is treated as a separate purchase with its own holding period.

That matters when you redeem. An instalment from 20 months ago is long-term; one from last month is not. Rupeezy matches every redemption against your oldest surviving units first (first-in, first-out), so each lot is dated correctly. Redeeming an equity SIP you started 14 months ago means only the earliest instalments qualify for the 12.5% long-term rate, and the rest are taxed at 20%.

Do ELSS funds reduce my tax?

Yes, under the old tax regime. ELSS schemes qualify for a deduction of up to ₹1,50,000 per financial year under Section 80C. The new tax regime does not offer this deduction.

The three-year lock-in is separate from the tax rules on gains. Because the lock-in runs past the 12-month equity threshold, every ELSS redemption is automatically long-term, taxed at 12.5% on gains above ₹1.25 lakh.

Where do I get the numbers for my tax return?

One statement covers all of it. The Combined Tax Reports statement on Dock carries your equity, F&O, commodity and mutual fund gains in a single workbook. Mutual funds sit in the Mutual Fund PnL tab, with the other segments on their own tabs. You do not need a separate report for each.

For mutual funds it applies first-in-first-out matching, the 31 January 2018 grandfathering rule on older equity units, stamp duty on your cost and exit load on your sale value, so the gain it shows is the one you report.

There are two routes to the same statement:

• Reports → Downloads. Choose Combined Tax Reports, set the financial year, then click Email me. See how do I get my mutual fund capital gains report.
• Reports → Statements. Choose Combined Tax Reports, set the date range, then click Download. See how to download tax P&L reports.

Import your external mutual funds with Track External Fund first, or the Mutual Fund PnL tab will only cover what you transacted on Rupeezy.

Things to keep in mind

• Rates here are for FY 2026-27. Capital gains rules changed on 23 July 2024 and thresholds move with each Union Budget. Check the current position before you file.
• The ₹1.25 lakh exemption does not carry forward. Unused headroom in one financial year is gone the next.
• Surcharge and cess sit on top of every rate quoted above. Your effective rate is higher than the headline number.
• Holding period runs from the dealing date, not the date you placed the order. Near the 12-month mark those can be different days, which is enough to flip a gain from long-term to short-term.
• This is general information, not tax advice. Your slab, regime and other income all change the answer. Take a tax professional's advice on your own position.