STCG on Debt Mutual Funds
- 19th September 2025
- 10:00:00 AM
- 5 min read
Debt mutual funds saw a strong inflow of INR 1.06 lakh crore in July 2025. However, do you know that your investments in debt mutual funds are taxed if you sell them early? Debt mutual funds are a safer investment option, but exiting from them too early can lead to higher tax payments.
Since the taxation rules for mutual funds have evolved over the years, understanding the STCG on debt mutual funds is crucial.
What Do Capital Gains Mean?
Capital gains are the financial gains or losses you incur while divesting from an investment. You can calculate these gains or losses by subtracting the initial buyer price from the final selling price of the asset. In India, there are two types of capital gains:
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Long-Term Capital Gains
LTCG is the profit earned by you from an asset held for a long period of time. This gain is realised for selling an asset after 12 months of purchase.
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Short-Term Capital Gains
This type of gain arises when you hold an asset for a short period after purchasing it. In terms of debt funds in India, if you liquidate your investment within 12 months, any profit earned is considered as STCG.
STCG Tax Application on Debt Mutual Funds
While focusing on debt funds, the STCG tax application has changed since April 1, 2023. The table below differentiates the STCG tax application on debt funds for investing before and after April 1, 2023:
| Purchase Date | Sell Date | Holding Period | STCG Tax Treatment |
| On or after April 1, 2023 | Any date | Any duration | Taxed at investor’s slab rate (always STCG) |
| On or before March 31, 2023 | On or before July 22, 2024 | ≤ 36 months | Taxed at the investor’s slab rate |
| On or before March 31, 2023 | On or after July 23, 2024 | ≤ 24 months | Taxed at the investor’s slab rate |
How STCG Tax is Levied on Debt Mutual Funds?
To identify the applicable tax for STCG on debt mutual funds, you need to calculate the STCG by subtracting the purchase price of an asset from its selling price.
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Calculation of Capital Gains
For instance, you invest INR 50,000 in a debt mutual fund and sell the investment for INR 60,000 within a year. Here is the calculation of the tax you have to pay for your gains:
STCG = Selling price − Purchase price
STCG = INR (60,000 – 50,000) = INR 10,000
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Checking the Income Tax Slab
For investments in debt mutual funds on or after April 1, 2023, the STCG will be determined based on an investor’s income tax slab rate. The table below highlights the income tax slab rates for FY 2025-26:
Income Tax Slabs for FY 2025-26 Income Tax Rates for FY 2025-26 Up to INR 4 lakh NIL INR 4 lakh to INR 8 lakh 5% INR 8 lakh to INR 12 lakh 10% INR 12 lakh to INR 16 lakh 15% INR 16 lakh to INR 20 lakh 20% INR 20 lakh to INR 24 lakh 25% -
Calculation of STCG Tax
Suppose you fall in the bracket of 5% tax with an annual income between INR 4 lakh and INR 8 lakh. Then, your payable tax will be:
INR (10,000 x 5%) = INR 500
The STCG tax is only applicable while withdrawing the funds. Until you withdraw your funds, the capital gains will not be considered as realised gains.
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Final Thought
Understanding the calculations and implications of STCG on debt mutual funds helps you optimise your returns and make informed investment decisions. As an investor, staying informed about these details helps you optimise your tax liabilities.
Download the PL Capital application and open a Demat account for free. PL allows you to invest in more than 2500 mutual funds.
Frequently Asked Questions
1. What is the holding period for debt mutual funds to avoid paying STCG tax?
If you have purchased debt mutual funds before April 1, 2023, and hold them for more than 36 months, you can avoid paying STCG tax. However, in that case, you have to pay LTCG tax.
2. Can STCG for debt funds be offset by losses from other investments?
Yes, STCG for debt funds can be offset by losses from other investments if funds are purchased before April 1, 2023.
3. Will the STCG tax be applied to debt mutual funds if sold within 3 years?
Yes, as per the new tax rules, if you sold your debt mutual funds within 3 years or even more, STCG tax will be applied.
4. How can I reduce STCG tax on debt mutual funds?
You can reduce the STCG tax on debt mutual funds by investing in funds for more than a year. This qualifies you for the lower LTCG tax rate.
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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
