✅ LTCG up to ₹1.25 Lakh Now Included in ITR-1 and ITR-4 | Key Update for AY 2025–26

📅 Assessment Year: 2025–26
📝 Major Update: Long-Term Capital Gains (LTCG) up to ₹1.25 lakh from listed securities under Section 112A can now be reported in ITR-1 (SAHAJ) and ITR-4 (SUGAM).

 

🔍 What Has Changed?

Earlier, if you had any LTCG from the sale of equity shares or units of equity-oriented mutual funds, you were compelled to file ITR-2 or ITR-3, even if your capital gains were below the exemption limit.

Now, the Income Tax Department has simplified this process by allowing:

➡️ Resident individuals (other than Not Ordinarily Resident)
➡️ With total income up to ₹50 lakh
➡️ Including LTCG up to ₹1.25 lakh from listed securities to continue filing ITR-1 or ITR-4, depending on the nature of their income.

⚖️ Why This Matters

This change is significant for small investors and salaried individuals who:

• Earn a small amount of LTCG from equity investments

• Don't want the complexity of switching to ITR-2 or ITR-3

• Want a simpler tax filing experience using Sahaj (ITR-1) or Sugam (ITR-4)

It aligns with the government's broader agenda of simplifying compliance for middle-class taxpayers.

🧾 Quick Comparison Before & After

Criteria	Earlier	Now (AY 2025–26)
LTCG up to ₹1.25   lakh	ITR-2 or ITR-3	ITR-1 or ITR-4 allowed if total income ≤ ₹50 lakh
LTCG > ₹1.25   lakh	ITR-2 or ITR -3	ITR-2 or ITR- 3 (still required)

 

 📌 Conditions to Remember

✅ LTCG must be from listed equity shares or equity mutual funds
✅ Total income (including LTCG) should not exceed ₹50 lakh
✅ Capital gains should be covered under Section 112A only
❌ LTCG above ₹1.25 lakh? → Still need to file ITR-2

💡 Pro Tip from Tax Manthan:

If you have minor equity gains and meet the conditions above, save time and effort by using ITR-1 or ITR-4 instead of ITR-2 or ITR-3. This not only makes your filing process faster but also reduces the chances of errors.

🔔 Stay updated with Tax Manthan for more such insights on the latest tax changes and filing tips!

To Join Tax Manthan WhatsApp Channel Click Here

⚠️ Disclaimer: The information provided is for general guidance only. For personalized tax planning and filing, consult a qualified tax professional.

Taxability of Mutual Funds in India (2025): A Complete Guide

Taxability of Mutual Funds in India (2025): A Complete Guide

Mutual funds are one of the most preferred investment options in India, offering diversification, professional management, and potential long-term growth. However, understanding the tax implications of mutual funds is crucial to maximize your post-tax returns.

This comprehensive guide simplifies mutual fund taxation in India for FY 2025–26.

 

✅ When Does Tax on Mutual Funds Apply?

You are liable to pay capital gains tax when:

1. You redeem (sell) mutual fund units.
2. You switch from one mutual fund scheme to another.
3. You transfer units to someone (except as a gift or inheritance).

💡 Note: Mere holding or unrealized gains are not taxed.

 

📌 Taxable Events in Mutual Funds

Event	Is It Taxable?	Remarks
Redemption of units	✅ Yes	Capital gains tax applies
Switch between schemes	✅ Yes	Even within the same fund house
Transfer as a gift to relative	❌ No	Not taxable at the time of gift; recipient pays tax on sale
Transfer via inheritance/will	❌ No	Taxable only when legal heir sells
Merger/amalgamation of funds	❌ No	Exempt under specific Income Tax rules

 

🚫 Non-Taxable Transfers Under Section 47

These transactions are not considered "transfers" and hence are not taxable at the time of occurrence:

Transaction	Relevant Section	Taxability	Remarks
Gift of units	Sec 47(iii)	❌ Not Taxable	Recipient taxed on sale
Inheritance or will	Sec 47(ii)	❌ Not Taxable	Legal heir taxed on future sale
Fund mergers/amalgamations	Sec 47(vii)	❌ Not Taxable	Exempt if SEBI-approved
Plan consolidations (e.g. growth to IDCW)	CBDT Notification	❌ Not Taxable	Must be SEBI-notified
Physical to demat conversion	General	❌ Not Taxable	Change in form only

✅ Important: In all the above, the original cost and holding period are carried forward to the recipient.

 

📊 Taxation Based on Type of Mutual Fund

1️. Equity Mutual Funds

(Where equity exposure is ≥ 65%)

• Short-Term Capital Gains (STCG)
• Holding Period: Less than 12 months
• Tax Rate: 20% + surcharge + cess
• Long-Term Capital Gains (LTCG)
• Holding Period: More than 12 months
• Tax Rate: 12.5% on gains exceeding ₹1.25 lakh/year
• Note: No indexation benefit

 

2️. Debt Mutual Funds

(Where equity exposure is < 65%)

• Post-April 1, 2023:
• All gains taxed as per your income tax slab
• No indexation benefit
• Before April 1, 2023:
• LTCG (>3 years) taxed at 20% with indexation

 

3️. Hybrid/Balanced Funds

• Tax treatment depends on equity exposure:
• ≥ 65% equity → Taxed as equity fund
• < 65% equity → Taxed as debt fund

 

💰 Dividends from Mutual Funds

• From FY 2020-21, Dividend Distribution Tax (DDT) was abolished.
• Dividends are now taxed in the hands of investors at slab rates.
• TDS @10% is deducted if dividend exceeds ₹5,000/year.

 

📌 Securities Transaction Tax (STT)

Type	STT Applicable?	Rate
Equity-oriented mutual funds	✅ Yes	0.001% on redemption/switch
Debt mutual funds	❌ No	Not applicable

 

🧠 ELSS – Tax Saving Mutual Funds

• Equity Linked Savings Scheme (ELSS) is eligible for tax deduction under Section 80C up to ₹1.5 lakh/year.
• Comes with a 3-year lock-in period.
• LTCG on redemption: 12.5% tax on gains above ₹1.25 lakh (no indexation).

 

🧾 How to Report Mutual Fund Gains in ITR

• Report in Schedule CG of your Income Tax Return.
• Use CAS (Consolidated Account Statement) from CAMS/KFintech or broker platforms.
• Use online tax tools or consult a CA to avoid filing errors.

 

📌 Summary Table: Mutual Fund Tax at a Glance

Type of Fund	STCG Tax	LTCG Tax	Holding Period for LTCG
Equity Fund	20%+Cess	12.5 % + Cess on gains > ₹1L	>12 months
Debt Fund	Slab rate	Slab rate	N/A (post April 2023)
Hybrid Fund	Depends on equity share	Same as above	Depends

 

✅ Conclusion

Mutual funds can be highly rewarding, but tax efficiency is key to maximizing your returns. By understanding the tax rules related to capital gains, dividends, and ELSS, you can make smarter investment and withdrawal decisions.

💡 Plan your investments, switch wisely, and stay updated on tax rules to avoid unpleasant surprises during tax filing season.

 

📢 Follow Tax Manthan for more expert insights on income tax, investments, and personal finance in India.

To Join Tax Manthan WhatsApp Channel Click Here