The Finance (No. 2) Act, 2024 introduced a mid-year change in capital gains taxation effective 23 July 2024. Mutual fund investors must now carefully bifurcate transactions before and after this date, as tax rates, exemption thresholds, and holding period definitions differ across regimes.
Equity-Oriented Funds (EOFs)
(Equity schemes with ≥65% in domestic equities, excluding equity-oriented FoFs)
| Type of Gain | Before 23-Jul-2024 | From 23-Jul-2024 onwards | Other Key Points |
|---|---|---|---|
| Short-Term (≤12m) | 15% (Sec. 111A) | 20% (Sec. 111A) | STT (Securities Transaction Tax) applicable |
| Long-Term (>12m) | 10% (Sec. 112A) | 12.5% (Sec. 112A) | Exemption: ₹1,00,000 → ₹1,25,000 |
| Exemption Threshold | ₹1,00,000 p.a. | ₹1,25,000 p.a. | No indexation benefit |
Debt Funds & “Specified Mutual Funds” (SMFs)
(Debt, gold ETFs, international funds, fund of funds, etc.)
| Investment Date | Sale Before 23-Jul-2024 | Sale On/After 23-Jul-2024 | Notes |
|---|---|---|---|
| Purchased ≤ 31-Mar-2023 | LTCG: 20% with indexation (holding >36m) STCG: slab rates (≤36m) | LTCG: 12.5% (holding >24m, no indexation) STCG: slab rates (≤24m) | Transition from 36m to 24m for LTCG definition |
| Purchased ≥ 01-Apr-2023 | Always STCG at slab rates (Sec. 50AA) | Same (no change) | Indexation benefit not available |
Snapshot: Before vs. After 23 July 2024
| Fund Type | Holding Period Test | Before 23-Jul-2024 | After 23-Jul-2024 |
|---|---|---|---|
| Equity Funds | 12 months | STCG @15%, LTCG @10% (₹1L exemption) | STCG @20%, LTCG @12.5% (₹1.25L exemption) |
| Debt / Gold / FoFs | 36 months (pre-change) → 24 months (post-change) | LTCG @20% with indexation | LTCG @12.5% (no indexation) |
| Debt (purchased ≥ Apr-2023) | Any | Always STCG @slab rate | Same |
TDS & Other Provisions
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Dividends: TDS @10% if payout >₹5,000 p.a. (Sec. 194K).
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NRIs: TDS @20% on capital gains (subject to DTAA relief, TRC required).
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Surcharge & Cess:
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Max surcharge capped at 15% for equity capital gains (Secs. 111A, 112, 112A).
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4% Health & Education Cess applicable across all categories.
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Indexation: Only available for legacy debt fund investments made before 31-Mar-2023 and sold before 23-Jul-2024.
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Bonus Stripping & Switches: Remain taxable under Sec. 94(8) and capital gains rules.
Filing & Compliance (AY 2025–26)
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Split reporting: Gains must be segregated into two periods—up to 22-Jul-2024 and from 23-Jul-2024 onwards—as ITR requires disclosure at applicable rates.
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Forms:
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ITR-2: Most resident investors, including capital gains from MFs.
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ITR-3: If combined with business/professional income.
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NRIs: Must furnish PAN + TRC + Form 10F to claim treaty relief.
Key Takeaways
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Equity funds: Higher STCG (20% vs 15%) but a slightly improved LTCG exemption (₹1.25L).
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Debt funds: Major impact—indexation benefit phased out, flat 12.5% LTCG rate for older holdings sold after 23-Jul-2024.
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Post–Apr 2023 debt investments: Always short-term, slab taxed—no benefit of LTCG.
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Practical compliance: Track purchase & sale dates carefully; even a one-day difference (before vs. after 23-Jul-2024) changes the tax outcome.
