Learn · Taxes · Part 1 of 2 · 4 min read
India's tax code treats listed shares and equity-oriented mutual funds (funds holding at least 65% in domestic equities) under the same rules. This means a direct stock holding and an equity mutual fund unit are taxed identically — the fund wrapper doesn't create a different tax outcome.
| Holding period | Classification | Tax rate |
|---|---|---|
| 12 months or less | Short-Term Capital Gains (STCG) | 20% |
| More than 12 months | Long-Term Capital Gains (LTCG) | 12.5% on gains above ₹1.25 lakh/year |
These rates were set in the July 2024 Union Budget (up from 15% STCG / 10% LTCG previously) and were left unchanged in the Budget 2026 review — but "unchanged this year" is never a guarantee for next year, which is exactly why this page states its as-of date rather than presenting these as permanent facts.
This is the detail people most often get wrong: the ₹1.25 lakh LTCG exemption is one combined annual limit across every eligible equity LTCG source you have — direct stocks, equity mutual funds, and equity-oriented hybrid funds all count toward the same ₹1.25 lakh, not a separate ₹1.25 lakh each. If you have ₹80,000 in LTCG from stocks and ₹90,000 from an equity fund in the same financial year, your combined ₹1.70 lakh only gets ₹1.25 lakh exempted — the remaining ₹45,000 is taxed at 12.5%.
It's tempting to time a sale purely to land on one side of the 12-month line, or to "book losses" purely for a tax outcome. But the tax difference between STCG (20%) and LTCG (12.5%) is smaller than the swing a stock or fund can move in the days around an arbitrary tax deadline — letting a tax rate override the actual investment thesis is a common, avoidable mistake. Tax efficiency matters, but it's a secondary consideration to the underlying decision of whether you'd still want to hold the investment anyway.