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9.2 Capital Gains on Mutual Fund Units

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NISM-Series-V-A: Mutual Fund Distributors Certification Examination Exam

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1 Chapter 1: Introduction & Exam Overview

1.1 About the NISM-Series-V-A Examination 1.2 The 12-Unit Curriculum Map and a Study Plan

2 Chapter 2: Investment Landscape

2.1 Investors and Their Financial Goals 2.2 Savings or Investments? 2.3 Different Asset Classes 2.4 Investment Risks 2.5 Risk Measures and Management Strategies 2.6 Behavioural Biases in Investment Decision Making 2.7 Risk Profiling 2.8 Asset Allocation and Do-It-Yourself versus Professional Help

3 Chapter 3: Concept and Role of a Mutual Fund

3.1 Concept of a Mutual Fund 3.2 Classification of Mutual Funds 3.3 Growth of the Mutual Fund Industry in India

4 Chapter 4: Legal Structure of Mutual Funds in India

4.1 Structure of Mutual Funds in India 4.2 Key Constituents of a Mutual Fund 4.3 AMC Organisation Structure and Service Providers 4.4 Role and Function of AMFI

5 Chapter 5: Legal and Regulatory Framework

5.1 Role of Regulators in India 5.2 Role of SEBI and the Mutual Fund Regulations 5.3 Due Diligence Process by AMCs for Distributors 5.4 Investor Grievance Redress Mechanism 5.5 AMFI Code of Conduct for Intermediaries

6 Chapter 6: Scheme Related Information

6.1 Mandatory Documents I: Scheme Information Document and Statement of Additional Information 6.2 Mandatory Documents II: Key Information Memorandum and the Advertisement Code 6.3 Non-Mandatory Disclosures

7 Chapter 7: Fund Distribution and Channel Management Practices

7.1 The Role and Importance of Mutual Fund Distributors 7.2 Different Kinds of Mutual Fund Distributors 7.3 Modes of Distribution 7.4 Pre-requisites to Become a Distributor of a Mutual Fund 7.5 Revenue for a Mutual Fund Distributor 7.6 Commission Disclosure Mandated by SEBI 7.7 Distributors versus Investment Advisers, Nomination Facilities and Change of Distributor

8 Chapter 8: Net Asset Value, Total Expense Ratio and Pricing of Units

8.1 Fair Valuation Principles 8.2 Computation of Net Assets of a Scheme and NAV 8.3 Dividends and Distributable Reserves 8.4 Entry and Exit Load and Its Impact on NAV 8.5 The Expense Ratio Framework: Base Expense Ratio, Brokerage and Statutory Levies 8.6 Key Accounting and Reporting Requirements 8.7 NAV, Total Expense Ratio and Pricing of Units for the Segregated Portfolio

9 Chapter 9: Taxation

9.1 Applicability of Taxes in Respect of Mutual Funds 9.2 Capital Gains on Mutual Fund Units 9.3 Dividend (IDCW) Income and Tax Deducted at Source 9.4 Stamp Duty and Securities Transaction Tax on Mutual Fund Units 9.5 Setting Off Capital Gains and Losses under the Income Tax Act 9.6 Tax Benefit under Section 80C and Applicability of GST

10 Chapter 10: Investor Services

10.1 The New Fund Offer Process 10.2 New Fund Offer Price and Ongoing Offer Price for Subscription 10.3 Investment Plans and Services 10.4 Allotment of Units and Account Statements 10.5 Mutual Fund Investors: Who Can Invest 10.6 Filling the Application Form for Mutual Funds 10.7 Financial Transactions with Mutual Funds 10.8 Cut-Off Time and Time Stamping 10.9 KYC Requirements for Mutual Fund Investors 10.10 Systematic Transactions and Their Operational Aspects 10.11 Non-Financial Transactions, Special Investor Categories and Turnaround Times

11 Chapter 11: Risk, Return and Performance of Funds

11.1 General and Specific Risk Factors 11.2 Factors That Affect Mutual Fund Performance 11.3 Drivers of Returns and Risk in a Scheme 11.4 Measures of Returns 11.5 SEBI Norms Regarding Representation of Returns 11.6 Risks in Fund Investing: The Investor's Perspective 11.7 Measures of Risk and Provisions Relating to Credit Risk

12 Chapter 12: Mutual Fund Scheme Performance

12.1 Benchmarks and Performance 12.2 Price Return Index or Total Return Index 12.3 Basis of Choosing an Appropriate Performance Benchmark 12.4 Benchmarks for Equity Schemes 12.5 Benchmarks for Debt Schemes and Other Schemes 12.6 Quantitative Measures of Fund Manager Performance 12.7 Tracking Error and Scheme Performance Disclosure

13 Chapter 13: Mutual Fund Scheme Selection

13.1 Scheme Selection Based on Investor Needs, Preference and Risk Profile 13.2 Risk Levels in Mutual Fund Schemes 13.3 Scheme Selection Based on Investment Strategy 13.4 Selecting a Scheme Across AMCs or Within a Scheme Category 13.5 Selecting Options in Mutual Fund Schemes and Do's and Don'ts

9.2 Capital Gains on Mutual Fund Units

Key Takeaways Explain This Topic AI

Equity-oriented units are long-term after 12 months, taxed at 12.5% above an annual exemption of INR 1.25 lakh.

Short-term gains on equity-oriented units are taxed at 20% under section 111A.

Gains on Specified Mutual Fund units acquired on or after 1 April 2023 are always short-term and taxed at slab rates.

Other non-equity units are long-term after 24 months if unlisted, or 12 months if listed, taxed at 12.5% without indexation.

Indexation was withdrawn for transfers made on or after 23 July 2024.

Last updated: August 2026

The Rates in Force

The Finance (No. 2) Act, 2024 reset capital gains taxation for transfers made on or after 23 July 2024 , and a further amendment redefined Specified Mutual Funds from assessment year 2026-27. The position below is the current one.

Equity-oriented schemes

  • Threshold Rate
  • Short-term Held 12 months or less 20% under section 111A

Long-term Held more than 12 months 12.5% under section 112A on gains exceeding INR 1.25 lakh in a financial year

The INR 1.25 lakh exemption is per investor per financial year , aggregated across all listed equity shares and equity-oriented units — not per scheme and not per transaction.

No indexation is available.

Surcharge as applicable and health and education cess at 4% apply on top of both rates.

Specified Mutual Funds

For units acquired on or after 1 April 2023 :

  • Gains are deemed short-term regardless of holding period , under section 50AA
  • Taxed at the investor's applicable slab rate
  • No indexation , and no long-term treatment however long the units are held

Holding a Specified Mutual Fund for eight years produces exactly the same tax treatment as holding it for eight weeks.

Other schemes

Gold ETFs, gold and international fund of funds, and hybrids holding between 35% and 65% in domestic equity:

  • Threshold Rate
  • Short-term Listed units held 12 months or less; unlisted units held 24 months or less Investor's slab rate
  • Long-term Listed units held over 12 months; unlisted units held over 24 months 12.5% without indexation

A gold ETF is listed , so its long-term threshold is 12 months. A gold fund of funds is unlisted , so its threshold is 24 months. Two products giving broadly the same exposure carry different holding-period tests, and the exam has used exactly this contrast.

Indexation Has Been Withdrawn

Indexation adjusted the cost of acquisition for inflation before computing the gain. For transfers made on or after 23 July 2024 it is no longer available on mutual fund units. Long-term gains are now computed simply as sale value less cost, taxed at the flat 12.5% rate. Any material describing indexation as available for mutual fund units is out of date.

Worked Examples

Example 1 — equity-oriented, long-term. Purchased INR 6,00,000 of an equity fund; redeemed after 26 months for INR 9,20,000. No other equity gains in the year. Gain = 9,20,000 - 6,00,000 = INR 3,20,000

  • Exempt = INR 1,25,000
  • Taxable = 3,20,000 - 1,25,000 = INR 1,95,000
  • Tax at 12.5% = INR 24,375 (plus cess)

Example 2 — equity-oriented, short-term. Purchased INR 4,00,000; redeemed after 7 months for INR 4,70,000. Gain = INR 70,000

Tax at 20% = INR 14,000 (plus cess)

The INR 1.25 lakh exemption does not apply to short-term gains.

Example 3 — Specified Mutual Fund. Purchased INR 10,00,000 of a corporate bond fund in June 2023; redeemed after 3 years for INR 12,40,000. Investor in the 30% slab. Gain = INR 2,40,000

  • Treatment = Short-term regardless of the three-year holding
  • Tax at 30% slab = INR 72,000 (plus surcharge and cess)

Example 4 — gold ETF. Purchased INR 3,00,000; sold on the exchange after 20 months for INR 3,90,000. Listed unit, held over 12 months -> long-term

  • Gain = INR 90,000
  • Tax at 12.5% without indexation = INR 11,250 (plus cess)
  • Computing the Gain Capital Gain = Full value of consideration
  • Cost of acquisition
  • Expenditure wholly and exclusively incurred on the transfer

Exit load is not deductible from the sale consideration for computing capital gains; it reduces the amount the investor receives but does not reduce the taxable gain.

FIFO applies. Where units were acquired on several dates, redemption is matched against the earliest units first, which determines both the holding period and the cost. For an investor with a long-running SIP this matters greatly: a redemption today draws on instalments made years ago, so much of the gain may qualify as long-term even though recent instalments do not.

Summary Table

  • Scheme type Long-term after LTCG rate STCG rate
  • Equity-oriented 12 months 12.5% above INR 1.25 lakh 20%
  • Specified Mutual Fund Never Not applicable Slab rate
  • Other, listed 12 months 12.5%, no indexation Slab rate
  • Other, unlisted 24 months 12.5%, no indexation Slab rate