ITR FY25: Capital gains from mutual funds taxed alike in both regimes

Daijiworld Media Network – New Delhi

New Delhi, Jun 22: As the income tax return (ITR) filing season for Assessment Year 2025–26 kicks off, taxpayers must note that capital gains from mutual funds (MFs) whether short-term or long-term—are taxable under both the old and new tax regimes. The choice of regime does not impact how mutual fund capital gains are computed or taxed.

According to Parizad Sirwalla, partner and head, Global Mobility Services, Tax, KPMG in India, “All deductions available while computing capital gains, including reinvestment exemptions, remain applicable under both tax regimes.”

Here’s a breakdown of how mutual fund capital gains are taxed:

1. Equity Mutual Funds

• Long-Term Capital Gains (LTCG):
Gains from equity MFs held for more than 12 months are taxed at 12.50%, after an exemption of Rs 1.25 lac.
(Effective July 23, 2024)

• Short-Term Capital Gains (STCG):
Gains from equity MFs held for 12 months or less are taxed at 20%.

2. Non-Equity Mutual Funds

• LTCG:
Gains on units held for more than 24 months are taxed at 12.50%.
• STCG:
Gains on units held for 24 months or less are taxed as per the individual’s income tax slab.

3. Specified Mutual Funds

These include MFs not meeting equity classification requirements (eg, funds holding less than 35% in equity).
• All gains, regardless of holding period, are treated as STCG and taxed as per slab rates.
Surcharge and Cess
• Old Regime:
Surcharge up to 37% for income exceeding Rs 5 cr.
• New Regime:
Capped at 25% beyond Rs 2 cr income.
• However, for capital gains (LTCG & STCG on equity MFs), surcharge is capped at 15% under both regimes.

Taxpayers should report mutual fund gains accurately while filing returns and keep an eye on the latest classification and tax rate changes that came into effect in July 2024.