Published: 2026-06-17 · By Bhanuprakash Sardesai
6. Equity Taxation in India: LTCG and STCG Explained
Understanding how your equity investments are taxed is crucial for accurate financial planning. The tax man takes a bite out of your returns, and if you haven't accounted for it, your actual post-tax corpus could be significantly lower than what a basic calculator shows. In India, equity mutual fund taxation depends on the holding period of your investment.
Short-Term Capital Gains (STCG): If you sell equity mutual fund units within 12 months of purchase, the gains are classified as short-term and taxed at a flat 20% (plus applicable surcharge and cess, bringing the effective rate to about 20.8% for most individuals). There is no exemption limit for STCG – every rupee of short-term gain is taxed.
Long-Term Capital Gains (LTCG): If you hold equity mutual fund units for more than 12 months, gains are classified as long-term. LTCG up to ₹1.25 lakh per financial year is completely tax-free. Gains above ₹1.25 lakh are taxed at 12.5% (plus surcharge and cess). This exemption limit is per individual, per financial year, across all equity mutual funds and equity shares combined.
The ₹1.25 lakh exemption is a powerful tax-planning tool. If you have a large corpus, you can systematically redeem units each year to stay within the exemption limit, paying zero LTCG tax on your withdrawals. This is the principle behind the Systematic Withdrawal Plan (SWP) strategy for tax-efficient retirement income.
Our calculators include a tax toggle that automatically applies LTCG tax to your gains above ₹1.25 lakh. You can instantly estimate your post-tax returns using our free online SIP Calculator by checking the "Apply Tax" option. This shows you exactly how much you'll have after the taxman's share, giving you a realistic picture rather than fantasy numbers.
Remember that dividends from equity mutual funds are now taxed in your hands at your slab rate, which is why growth options are generally more tax-efficient than dividend options for long-term investors. Use our SIP Calculator to plan your investments tax-efficiently.
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