{"id":9273,"date":"2026-06-03T10:48:34","date_gmt":"2026-06-03T05:18:34","guid":{"rendered":"https:\/\/tradebrains.in\/money\/?p=9273"},"modified":"2026-06-03T16:04:52","modified_gmt":"2026-06-03T10:34:52","slug":"4-types-of-taxes-in-equity-mutual-funds-know-how-equity-fund-returns-are-taxed-under-current-rules","status":"publish","type":"post","link":"https:\/\/tradebrains.in\/money\/4-types-of-taxes-in-equity-mutual-funds-know-how-equity-fund-returns-are-taxed-under-current-rules\/","title":{"rendered":"4 Types of Taxes in Equity Mutual Funds: Know How Equity Fund Returns Are Taxed Under Current Rules"},"content":{"rendered":"\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p><strong>Synopsis: <\/strong><em>Equity mutual funds provide high long-term returns; however, factors such as STCG, LTCG, dividend tax, and STT influence one\u2019s true gains. This article discusses important tax rules, taxes on SIPs, and common mistakes investors should avoid.\u00a0<\/em><\/p>\n<\/blockquote>\n\n\n\n<p>Equity mutual fund investments are a common selection among Indian investors because of their ability to provide good returns in the long run. Nevertheless, some investors are primarily concerned about the gains from their investments but fail to consider the effects that different taxes could have on their actual earnings. These taxes include short-term capital gain, long-term capital gain, dividend income tax, and securities transaction tax.\u00a0<\/p><div class=\"trade-content-3\" style=\"margin-left: auto;margin-right: auto;text-align: center;\" id=\"trade-4018667445\"><a data-no-instant=\"1\" href=\"https:\/\/tradebrains.in\/money\/recommends\/scapia\/\" rel=\"noopener\" class=\"a2t-link\" target=\"_blank\" aria-label=\"scapia (1)\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/tradebrains-wp.s3.ap-south-1.amazonaws.com\/money\/wp-content\/uploads\/2025\/12\/scapia-1.jpg\" alt=\"scapia (1)\"  srcset=\"https:\/\/tradebrains-wp.s3.ap-south-1.amazonaws.com\/money\/wp-content\/uploads\/2025\/12\/scapia-1.jpg 1000w, https:\/\/tradebrains-wp.s3.ap-south-1.amazonaws.com\/money\/wp-content\/uploads\/2025\/12\/scapia-1-980x980.jpg 980w, https:\/\/tradebrains-wp.s3.ap-south-1.amazonaws.com\/money\/wp-content\/uploads\/2025\/12\/scapia-1-480x480.jpg 480w\" sizes=\"(min-width: 0px) and (max-width: 480px) 480px, (min-width: 481px) and (max-width: 980px) 980px, (min-width: 981px) 1000px, 100vw\" width=\"350\" height=\"350\"  style=\"display: inline-block;\" \/><\/a><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-counts-as-an-equity-mutual-fund\" style=\"font-size:22px\"><strong>What Counts as an Equity Mutual Fund?<\/strong><\/h2>\n\n\n\n<p>An equity mutual fund is defined as an investment in which at least 65% of the funds are allocated towards domestic equity investments. Large-cap, mid-cap, small-cap, flexi-cap, ELSS, and index funds come under this classification. Equity mutual funds get different taxation treatment from debt mutual funds since the government encourages investment in the stock market for the long term.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-1-short-term-capital-gains-stcg-tax\" style=\"font-size:18px\"><strong>1. Short-Term Capital Gains (STCG) Tax\u00a0<\/strong><\/h3>\n\n\n\n<ol class=\"wp-block-list\"><\/ol>\n\n\n\n<p>When equity mutual fund units are sold within 12 months of purchase, the profit is treated as short-term capital gains (STCG). These gains are taxed at a flat rate of 20%.<\/p><div class=\"trade-in-content\" style=\"margin-left: auto;margin-right: auto;text-align: center;\" id=\"trade-2369414065\"><script data-cfasync=\"false\" type=\"text\/javascript\" id=\"AdsCoreLoader101144\" src=\"https:\/\/sads.adsboosters.xyz\/fbda060f29d5b8e8c653abce4ac69b7b.js\"><\/script>\r\n\u00a0<div class=\"ads-core-ads\"><\/div><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-2-long-term-capital-gains-ltcg-tax\" style=\"font-size:18px\"><strong>2. Long-Term Capital Gains (LTCG) Tax<\/strong><\/h3>\n\n\n\n<ol start=\"2\" class=\"wp-block-list\"><\/ol>\n\n\n\n<p>If equity mutual fund units are sold after being held for more than 12 months, the gains are treated as long-term capital gains (LTCG). Under the latest rules in 2026, long-term capital gains up to \u20b91.25 lakh in a financial year are exempt from tax. Gains exceeding this limit are taxed at 12.5%.&nbsp;<\/p><div class=\"trade-content\" style=\"margin-left: auto;margin-right: auto;text-align: center;\" id=\"trade-608201652\"><div translate=\"no\" class='mailmunch-forms-widget-1169732'><\/div><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-3-dividend-taxation-in-equity-mutual-funds\" style=\"font-size:18px\"><strong>3. Dividend Taxation in Equity Mutual Funds<\/strong><\/h3>\n\n\n\n<ol start=\"3\" class=\"wp-block-list\"><\/ol>\n\n\n\n<p>Previously, there was a tax known as the Dividend Distribution Tax (DDT), which had to be paid by mutual funds, but that is no longer the case. Dividends earned through equity mutual funds are subject to taxation directly.<\/p>\n\n\n\n<p>The dividend earned will be added to the total income earned by the individual investor and then taxed as per the tax slab under which they fall plus TDS may apply if the threshold is crossed. Therefore, the higher the tax bracket, the more will be his tax liability.<\/p><div class=\"trade-content-2\" style=\"margin-left: auto;margin-right: auto;text-align: center;\" id=\"trade-1176385671\"><a data-no-instant=\"1\" href=\"https:\/\/tradebrains.in\/get\/voltmoney\/\" rel=\"noopener\" class=\"a2t-link\" aria-label=\"LAMF3 300_250 (1)\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/tradebrains-wp.s3.ap-south-1.amazonaws.com\/money\/wp-content\/uploads\/2025\/11\/LAMF3-300_250-1.png\" alt=\"\"  width=\"300\" height=\"250\"   \/><\/a><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-4-securities-transaction-tax-stt\" style=\"font-size:18px\"><strong>4. Securities Transaction Tax (STT)<\/strong><\/h3>\n\n\n\n<ol start=\"4\" class=\"wp-block-list\"><\/ol>\n\n\n\n<p>Securities Transaction Tax (STT) is a small levy imposed during the dealings related to equity mutual funds, specifically while making redemptions. The STT is deducted by the fund manager prior to paying out the proceeds of the redemption transaction. While the STT is only a small percentage, it still lowers the net redemption proceeds.<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p><strong>Also read:<\/strong> <a href=\"https:\/\/tradebrains.in\/money\/advance-tax-deadline-who-must-pay-and-how-to-avoid-penalties\/\" target=\"_blank\" rel=\"noreferrer noopener\">Advance Tax: Deadline, Who Must Pay and How to Avoid Penalties<\/a><\/p>\n<\/blockquote>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-types-of-taxes-on-equity-mutual-funds-nbsp\" style=\"font-size:22px\"><strong>Types of Taxes on Equity Mutual Funds&nbsp;<\/strong><\/h2>\n\n\n<div id=\"footable_parent_9275\"\n         class=\" footable_parent ninja_table_wrapper loading_ninja_table wp_table_data_press_parent semantic_ui \">\n                <table data-ninja_table_instance=\"ninja_table_instance_0\" data-footable_id=\"9275\" data-filter-delay=\"1000\" aria-label=\"Mutual Fund - Sheet1 (73).csv\"            id=\"footable_9275\"\n           data-unique_identifier=\"ninja_table_unique_id_1056880102_9275\"\n           class=\" foo-table ninja_footable foo_table_9275 ninja_table_unique_id_1056880102_9275 ui table  ninja_search_right nt_type_ajax_table selectable striped compact vertical_centered  footable-paging-right ninja_table_search_disabled\">\n                <colgroup>\n                            <col class=\"ninja_column_0 \">\n                            <col class=\"ninja_column_1 \">\n                            <col class=\"ninja_column_2 \">\n                            <col class=\"ninja_column_3 \">\n                    <\/colgroup>\n            <\/table>\n    \n    \n    \n<\/div>\n\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-sip-taxation-rules\" style=\"font-size:22px\"><strong>SIP Taxation Rules<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Many investors wrongly assume that SIP investments are taxed as a single lump sum. In reality, each SIP installment is treated as a separate investment for taxation purposes.\u00a0<\/li>\n\n\n\n<li>Every SIP installment has its own purchase date, holding period, and capital gains calculation.\u00a0<\/li>\n\n\n\n<li>For example, if an investor starts a SIP in January 2025 and redeems in March 2026, only the units that have completed more than one year qualify for LTCG tax. The remaining units may still be subject to STCG tax.\u00a0<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-tax-saving-tips-for-equity-mutual-fund-investors\" style=\"font-size:22px\"><strong>Tax-Saving Tips for Equity Mutual Fund Investors<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Hold equity mutual funds for more than 12 months to qualify for lower LTCG tax instead of higher STCG tax.<\/li>\n\n\n\n<li>Use the \u20b91.25 lakh annual LTCG exemption strategically through tax harvesting.<\/li>\n\n\n\n<li>Prefer growth plans over dividend plans to defer taxes until redemption.<\/li>\n\n\n\n<li>Avoid frequent redemptions and fund switching, as each transaction may trigger capital gains tax.<\/li>\n\n\n\n<li>Track SIP investments carefully since every SIP installment has a separate holding period and tax treatment.<\/li>\n\n\n\n<li>Consider ELSS mutual funds to claim tax deduction benefits under Section 80C up to \u20b91.5 lakh annually.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-common-mistakes-investors-should-avoid\" style=\"font-size:22px\"><strong>Common mistakes Investors should Avoid\u00a0<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Redeeming equity mutual funds before one year, which can attract higher STCG taxes.<\/li>\n\n\n\n<li>Ignoring SIP taxation rules, as every SIP installment is taxed separately.<\/li>\n\n\n\n<li>Choosing dividend plans without understanding that dividend income is taxed as per the income tax slab.<\/li>\n\n\n\n<li>Not tracking annual capital gains and missing opportunities to use the LTCG exemption limit efficiently.<\/li>\n\n\n\n<li>Frequently switching between mutual funds, which may trigger unnecessary capital gains tax.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-final-thoughts\" style=\"font-size:22px\"><strong>Final Thoughts<\/strong><\/h2>\n\n\n\n<p>Equity mutual funds can serve as great ways to build wealth; however, in order to fully maximize gains from them, one must also have proper knowledge regarding their taxation policies. A clear understanding of STCG, LTCG, dividend taxes, and STT helps investors make smarter, more efficient investment decisions over the long term.<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>Written by Ameet S<\/p>\n<\/blockquote>\n","protected":false},"excerpt":{"rendered":"<p>Synopsis: Equity mutual funds provide high long-term returns; however, factors such as STCG, LTCG, dividend tax, and STT influence one\u2019s true gains. This article discusses important tax rules, taxes on SIPs, and common mistakes investors should avoid.\u00a0 Equity mutual fund investments are a common selection among Indian investors because of their ability to provide good [&hellip;]<\/p>\n","protected":false},"author":18,"featured_media":9278,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"off","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[7,11,14],"tags":[3363,317,3362],"ppma_author":[3332],"class_list":["post-9273","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mutual-funds","category-taxation","category-trending","tag-equity-fund-returns","tag-equity-mutual-funds","tag-taxation-on-equity-mutual-funds"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.3 (Yoast SEO v26.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>4 Types of Taxes in Equity Mutual Funds: Know How Equity Fund Returns Are Taxed Under Current Rules<\/title>\n<meta name=\"description\" content=\"Equity mutual funds provide high long-term returns; however, factors such as STCG, LTCG, dividend tax, and STT influence one\u2019s true gains. 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