Mutual Fund Tax Rule: There have been many important changes in the tax rules related to mutual funds in the last few years. First of all, a big change came into force from 1 April 2023, and then from 23 July 2024, the tax rates also changed. Earlier, mutual funds were divided into only two categories and dates. Equity funds, from a tax perspective, were considered better for investors. But now the situation has changed.
In 2023, the government abolished the indexation benefit and also changed the definition of holding period. In 2024, tax rates were reshuffled in 2024. The new definition of ‘Special Fund’ was implemented in 2025. Keeping all these changes in mind, it has become very important to understand its tax structure before investing in mutual funds.
Three new tax categories of mutual funds
According to Niranjan Awasthi, Senior Vice President of Edelweiss Mutual Fund, now mutual funds are divided into three categories according to tax, including equity-oriented funds, specified / date-oriented funds, and other mutual funds. At the same time, tax rules of equity funds are the easiest, while other fund rules also depend on their purchase and sale dates.
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Important condition of investment in equity funds
If a mutual fund invests at least 65% in shares of Indian companies, it will be considered an equity fund. These schemes come in this category. Which includes Normal Equity Funds, ETFs, Index Funds, Thematic Funds, Hybrid Funds, Arbitrage Funds, Equity Savings Funds etc.
New change in tax rules of equity funds
Let me tell you that there was a first change in the budget of 2018. On the other hand, if you have held the fund for more than 12 months, then it will have long-term capital gains (LTCG). Earlier, LTCG was levied 10% tax, which is now 12.5%. Which is applicable since the year 2024. At the same time, selling funds before 12 months will be considered as a short-term gain (STCG) and it will now be charged 20% tax. Now the tax exemption limit on LTCG has been increased from ₹ 1 lakh to ₹ 1.25 lakh.
Date funds and indexation facilities are now over
Before 2023, indexation benefited debt funds, which led to less tax. But it was removed in the Finance Act 2023. Now, the date and some non-equity funds are considered as special funds, and their gains have to pay tax according to the tax slab, like short-term capital gains.
New definition of Special Fund
According to the Finance Act 2024, from 1 April 2025, if a fund makes 65% or more in the date and money market instruments, it will be considered a special fund. This change has affected gold funds and international funds, as they do not invest 65% on the date. Therefore, they are now put in other mutual fund categories. With this, the Grandfathering Benefit will continue to be available for old schemes.
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Arbitrage Fund: Better option in terms of tax
Although the strategy of Arbitraj Funds is like a date, if they invest more than 65% in shares, they are considered an equity fund.
This means. At the same time, 12.5 percent LTCG is on sale after 12 months. With this, 20 % STCG is applied to sell before 12 months. At the same time, this can be a good option for investors coming from high tax slabs.
Ask yourself these questions before investing
Let us know that equity savings funds and aggressive hybrid funds can also be beneficial from the tax perspective – if 65% or more parts have been invested in shares. Therefore, instead of just looking at returns, it is important to understand the tax structure of the fund. When you start SIP next time or invest in a fund, definitely ask yourself a question. How much tax do I have to pay on the returns from this investment?