Income Tax Return: Are capital gains from MFs taxed differently under new & old regime? What taxpayers should know about new LTCG, STCG rules

Income Tax Return Filing AY 2025-26: One important aspect of income tax return filing, apart from reporting income from salary, is also filling in details of any capital gains - short-term or long-term - that you have made during the financial year.

If you are wondering whether taxation of capital gains made from mutual funds differs between the new and the old income tax regime, we have you covered.

Capital Gains From MFs: How Does Taxation Work?
Capital gains from sale of mutual funds (MFs) are taxable In India, under both the old and new income tax regimes. The categorization of the MF, method of computation of capital gains, is not impacted by the choice of the income tax regime by an individual.

“All the deductions available while computing the capital gains, including towards reinvestment in the specified new asset, continue to be equally available under both the new and old income tax regimes,” says Parizad Sirwalla, Partner and Head, Global Mobility Services, Tax, KPMG in India.

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In general, from a taxability perspective, MFs are broadly categorized into equity MFs and non-equity MFs. There is also a special category of specified MFs within the non-equity MFs.

Parizad Sirwalla tells TOI, “Effective 23 July 2024, gains from sale of equity MFs, if held for more than 12 months, are classified as Long-term ( LTCG ) and gains (exceeding Rs 1.25 lakh) are taxable at 12.50%. Short Term Capital Gains ( STCG ) from sale of equity MFs are taxable at 20%.”

• Gains from sale of non - equity MFs, held for more than 24 months, are considered LTCG and taxable at 12.50%.

• STCG from sale of non-equity MFs are taxable as per the income tax slab rates.

• Further, gains from specified MFs are deemed to be STCG irrespective of the holding period and taxable as per the tax slab rates. Applicable surcharge and cess apply on the above tax rates

“The tax slab rates, surcharge rates and applicable rebates, will apply qua the tax regime chosen. The maximum surcharge under the old tax regime is 37% (triggers beyond income of Rs 5 crore) while under the new regime it is restricted to 25% (triggers beyond income of Rs 2 crore). It may be noted that under both tax regimes, surcharge is restricted to 15% on all LTCG and STCG on equity MF,” Parizad Sirwalla adds.

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