You invested smartly, the market went up, and now you have profits! But before you spend it, the Taxman wants his share. Let's understand Capital Gains tax on Equity (Stocks & Mutual Funds).
Short-Term vs Long-Term
If you buy and sell an equity mutual fund or stock within 12 months, it is considered Short-Term.
- STCG Rate: You pay a flat 20% tax on your profits.
If you hold the investment for more than 12 months, it becomes Long-Term.
- LTCG Rate: You pay 12.5% tax on your profits.
The ₹1.25 Lakh Exemption
The government gives a massive benefit to retail investors: Your first ₹1.25 Lakhs of Long Term Capital Gains in a financial year is completely tax-free!
Example: You invest ₹5 Lakhs. Two years later, it grows to ₹7 Lakhs. You sell it.
- Your profit is ₹2 Lakhs.
- ₹1.25 Lakhs is exempt.
- You only pay 12.5% tax on the remaining ₹75,000 (which is just ₹9,375).
Tax Harvesting Strategy
Smart investors sell and immediately rebuy a portion of their portfolio every year to "book" up to ₹1.25 Lakhs in profit, permanently saving that tax without actually exiting the market!
👉 Grow your portfolio first!
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Quick FAQs
1. Are debt mutual funds taxed differently?
Yes, debt mutual funds are now taxed exactly as per your income tax slab, regardless of how long you hold them. They have lost their LTCG indexation benefits.