LTCG Tax on Mutual Funds and Stocks: What Changed After Budget 2024

An investor who sold equity mutual fund units in early 2024 paid a very different tax than someone who sold the same units, at the same profit, a year later. The Union Budget presented in July 2024 rewrote the long-term capital gains (LTCG) rules for equity and mutual funds, and a lot of investors are still calculating their tax using the old numbers out of habit.

What is LTCG and how did the rules change? #

Long-term capital gains apply when you sell an equity investment (stocks or equity mutual funds) after holding it for more than 12 months. Before the July 2024 Budget, LTCG on equity was taxed at 10%, with the first ₹1,00,000 of gains in a financial year exempt.

After the Budget 2024 changes, effective from 23 July 2024, the rules moved to:

• Tax rate: 12.5% on LTCG from equity shares and equity-oriented mutual funds (up from 10%).
• Exemption limit: ₹1,25,000 per financial year (up from ₹1,00,000).
• No indexation benefit for equity LTCG, since it was never available for this asset class in the first place, unlike debt funds and property, where indexation rules have their own separate history.

Since these are the currently applicable rates as of this writing, use them for your planning, but always confirm against the latest Finance Act if you're reading this well after publication, since capital gains rules are revised periodically.

How LTCG tax is actually calculated #

Tax = (Total LTCG − Exemption limit) × Applicable rate

The exemption limit applies once per financial year, across all your equity LTCG combined, not per transaction or per fund.

Worked example: ₹3,00,000 in equity mutual fund gains #

Say you sell equity mutual fund units in a financial year, holding them for over 12 months, and your total gain across all such sales is ₹3,00,000.

• Total LTCG: ₹3,00,000
• Exemption limit: ₹1,25,000
• Taxable LTCG: ₹3,00,000 − ₹1,25,000 = ₹1,75,000
• Tax at 12.5%: ₹1,75,000 × 0.125 = ₹21,875

Compare this to the pre-Budget-2024 rules, where the same ₹3,00,000 gain would have faced a ₹1,00,000 exemption and a 10% rate: taxable gain of ₹2,00,000, tax of ₹20,000. The new rules mean a slightly higher tax bill on the same gain, since the rate increase (10% to 12.5%) outweighs the modest bump in exemption limit for gains of this size.

Before and after: a side-by-side comparison #

The exemption increase partially offsets the rate hike, but only for smaller gains. Once your annual LTCG crosses roughly ₹5 to 6 lakh, the higher rate outweighs the higher exemption and your effective tax bill under the new rules ends up larger than it would have been under the old ones.

Short-term vs long-term: don't confuse the two #

Short-term capital gains (STCG), for equity held 12 months or less, are taxed at a flat 20% (also revised upward in the same Budget from 15%), with no exemption limit at all. This makes the holding period genuinely important: selling even a day before the 12-month mark can mean a materially higher tax bill on the same gain.

Common mistakes with LTCG tax #

1. Using the pre-2024 10% rate out of habit. A lot of investor spreadsheets and mental math still reference the old rate. Double-check you're using 12.5%, not 10%, for sales after 23 July 2024.
2. Forgetting the exemption applies per financial year, not per fund. If you're redeeming from three different mutual funds in the same year, the ₹1,25,000 exemption covers your combined gains across all three, not ₹1,25,000 each.
3. Selling just before the 12-month mark to "lock in gains." This can inadvertently convert a lower-taxed LTCG into a higher-taxed STCG. Check the exact holding period before triggering a redemption.
4. Ignoring grandfathering rules for pre-2018 investments. Gains on equity investments held before 31 January 2018 have a separate grandfathering provision for the cost basis calculation, which is a different (and older) rule than the 2024 rate change.

Tips for managing LTCG tax efficiently #

• Harvest gains within the exemption limit each year. If you have unrealized gains, selling and immediately reinvesting up to ₹1,25,000 of gains annually locks in the tax-free portion without permanently exiting your position.
• Track your holding period carefully, especially for SIP investments, since each instalment has its own separate holding period, calculated from its own purchase date, not your first SIP date.
• Don't let tax alone drive investment decisions. A marginally higher LTCG rate rarely justifies exiting a fund that's otherwise performing well for your goals.
• Keep clean records of purchase dates and NAVs for every transaction, since this is what your tax filing (and any future scrutiny) will rely on.

Check your equity gains against the income tax calculator to see your overall tax position for the year, factoring in both your salary and capital gains. If you're also dealing with capital gains from selling property, which follows separate rules, the property capital gains calculator covers that scenario, including a real example like a 2018 purchase sold in 2026 with indexation.

Frequently asked questions #

What is the current LTCG tax rate on equity mutual funds? #

As of the Budget 2024 changes effective 23 July 2024, LTCG on equity shares and equity-oriented mutual funds is taxed at 12.5%, with an exemption of ₹1,25,000 per financial year. Always verify this against the current Finance Act if reading well after this rate was set, since capital gains rules do get revised.

Is there indexation benefit for equity LTCG? #

No. Indexation was never available for equity LTCG, even before the 2024 changes. Indexation historically applied to certain debt funds and property, and those rules have also seen separate changes, so check the current rules for the specific asset class you're selling.

How is the ₹1,25,000 exemption applied if I sell from multiple funds? #

The exemption applies once per financial year across your combined equity LTCG from all sources, not separately for each mutual fund or stock you sell. Add up all your LTCG for the year first, then apply the single exemption.

What's the difference between STCG and LTCG tax rates for equity? #

Short-term capital gains (holding period of 12 months or less) on equity are taxed at a flat 20% with no exemption. Long-term capital gains (holding period over 12 months) are taxed at 12.5% after a ₹1,25,000 annual exemption, making the 12-month holding period genuinely consequential for your tax bill.

Check your own capital gains position with the LTCG calculator and the income tax calculator before you redeem, and confirm the applicable LTCG rate hasn't changed in a subsequent Budget by the time you're reading this. Tax rules on capital gains have been revised more than once in the last few years, so a five-minute check against the current Finance Act before a large redemption is a habit worth keeping regardless of what the rate happens to be at the time you read this.