Capital Gains Tax on Equity Funds and Shares
How short-term and long-term capital gains on listed shares and equity mutual funds are taxed, with a worked example.
When you sell shares or equity mutual fund units at a profit, the gain is taxed as capital gains. How much depends on how long you held the investment.
Short-term vs long-term
- Short-term (held up to 12 months): taxed at 20% under the rules effective from the July 2024 Budget.
- Long-term (held more than 12 months): taxed at 12.5% on gains above ₹1.25 lakh in a financial year.
Rates also attract 4% cess, and surcharge can apply at higher incomes. These rates have changed in recent years, so confirm the current figures with the Income Tax Department before acting.
Worked example
Suppose you sell units held for 3 years and make a gain of ₹3 lakh in the year, with no other long-term gains. The taxable part is ₹3,00,000 − ₹1,25,000 = ₹1,75,000. At 12.5% that is ₹21,875, plus cess of about ₹875, for roughly ₹22,750 in total.
SIP and the 12-month rule
Each SIP instalment is a separate purchase with its own holding period. Units from instalments older than 12 months are long-term; newer ones are short-term. Funds use first-in-first-out when you redeem, so older units are sold first.
Planning ideas
- Spread large redemptions across financial years to use the yearly ₹1.25 lakh exemption more than once.
- Avoid selling just before the 12-month mark if it makes sense for your goals.
- Losses can be set off against gains, subject to rules.
The SIP calculator and lumpsum calculator show gains before tax, so deduct tax when you plan withdrawals, for example in an SWP.
General information only. Consult a tax professional for your case.
Frequently asked questions
Is there tax on SIP returns every year?
No. Tax arises only when you redeem units and realise a gain.
What is the long-term holding period for equity funds?
More than 12 months under current rules.
More guides
Calculators
Last reviewed: October 2026. General education, not financial advice.