How investments are taxed
Two investments with the same pre-tax return can leave very different amounts in your hand. Tax is part of the return.
Equity and equity funds
Gains on listed shares and equity-oriented funds held more than 12 months are long-term capital gains, taxed at 12.5% on gains above ₹1.25 lakh a year. Held for 12 months or less, they are short-term gains, taxed at 20%. Dividends are taxed at your slab rate.
- Equity fund, held > 1 year (above ₹1.25L exemption)₹12,500
- Equity fund, held < 1 year₹20,000
- Gold ETF, held > 1 year₹12,500
- FD interest or new debt fund (30% slab)₹30,000
- PPF interest₹0
Debt, deposits and gold
FD and RD interest is taxed every year at your slab rate. Debt mutual fund units bought on or after 1 April 2023 are taxed at slab rate whenever you sell, with no long-term benefit. Gold ETFs held more than 12 months, and gold mutual funds held more than 24 months, are taxed at 12.5% as long-term gains.
PPF, EPF (within limits) and the 60% NPS lumpsum at retirement are tax-free.
Using the rules well
Hold equity for over a year where you can. Use the ₹1.25 lakh long-term exemption each year by booking some gains and reinvesting (tax harvesting). Place high-tax assets in tax-efficient wrappers where possible, and remember that for high earners, FD interest at 30% slab is a heavy drag.
Key takeaways
- 1Equity LTCG: 12.5% above ₹1.25 lakh; STCG: 20%.
- 2FD interest and new debt fund gains are taxed at slab rate.
- 3Holding period changes your tax, often a lot.
Try it with your own numbers
Finish this lesson
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Educational content, not investment advice. Figures are illustrative.