How To Calculate STCG on Debt Funds?

Taxes are applied to capital gain on any investment. In this article, we will understand the tax liability on debt mutual fund gains, highlighting the importance of informed investing.

Investing in debt mutual funds, offering a balance between risk and return, has become a popular choice for many in India. However, understanding the tax implications, specifically Short-Term Capital Gains (STCG) on debt mutual funds, is crucial for making informed investment decisions. This article aims to demystify the process of calculating STCG on debt funds, providing a detailed overview for the Indian investor.

What are Capital Gains?

Firstly, let’s understand capital gains. Capital gains are essentially the financial returns or losses you incur when you divest from an investment or property. This gain or loss is calculated by comparing the initial acquisition cost (commonly known as the ‘base cost’) with the final selling price of the asset.

There are primarily two categories of capital gains, differentiated based on the duration for which the asset was held:

  1. Short-Term Capital Gains (STCG): This type of gain arises when you offload an asset after holding it for a relatively brief period. For example, in the context of debt funds in India, if you liquidate your investment within a span of three years, any profit earned is categorised as STCG.
  2. Long-term capital gains (LTCG): Contrarily, LTCG pertains to profits made from an asset held over a more extended period. Using the same example of Indian debt funds, profits realised after maintaining your investment for more than 3 years are considered long-term capital gains.

Also Read More About Long-Term Capital Gains on Mutual Funds

How are Debt Mutual Funds Taxed?

Now, focusing on STCG on debt funds: For debt mutual funds, if the holding period is less than 36 months, it is classified as STCG. These gains are taxed according to the investor’s income tax slab, which differs from the fixed rate applicable to LTCG.

Type of Capital Gain Holding Period of Debt Fund Taxation Method
Short Term Capital Gain (STCG) Less than 36 months Taxed as per the investor’s income tax slab
Long Term Capital Gain (LTCG) More than 36 months Taxed as per the investor’s income tax slab

Note: From April 1, 2023, debt funds no longer offer indexation benefits; all gains are taxed based on the investor’s tax slab. This means that all gains from such investments will now be taxed according to the investor’s individual tax slab rate. 

However, investments made in debt funds before April 1, 2023, will still be eligible for a 20% indexation benefit when calculating long-term capital gains.

Calculation of STCG on Debt Mutual Funds

To calculate STCG on debt mutual funds, you must subtract the purchase price from the selling price. However, the calculation can get complex due to various factors like the type of fund, the duration of the investment, and applicable taxes.

Formula for calculating the capital gains: 


For example, suppose you invest ₹1,00,000 in a debt mutual fund and sell the investment for ₹1,10,000 within a year. Let’s calculate the tax you’d owe on your gains.


Purchase Price = ₹1,00,000 

Selling Price = ₹1,10,000 

Step 1: Calculate your capital gains

STCG= SellingPrice−PurchasePrice

STCG= ₹1,10,000-₹1,00,000 

STCG= ₹10,000

Step 2: Check your income tax slab 

Tax Slabs as per New Tax Regime as per 2023-24

Income tax slabs (in ₹)  Income tax rate (%) 
Between 0 and 3,00,000 0
Between 3,00,000 and 6,00,000 5%
Between 6,00,000 and 9,00,000 10%
Between 9,00,000 and 12,00,000 15%
Between 12,00,000 and 15,00,000 20%
Above 15,00,000 30%

Suppose you fall in the bracket of 10% tax with an annual income between ₹6,00,000 and ₹9,00,000.

Step 3: Calculating the taxes applicable

Tax Charged= STCG x Tax Slab Rate

Tax Charged= ₹10,000 x 10%

Tax Charged= ₹1,000 

Therefore, for the fiscal year 2023-24, your tax liability on the Short Term Capital Gains would amount to ₹1,000.

Remember, this tax liability is only applicable when you withdraw the funds. Until you withdraw your funds, the capital gains will not be considered as realised gains.

Tax Liability on Debt Mutual Funds SIP

Calculating tax liability for SIPs in debt funds requires understanding each instalment as a separate investment. The holding period for each SIP instalment is considered individually for taxation. Therefore, calculating STCG on mutual funds through SIPs can be more complex than lump-sum investments.

For example, if you start a monthly SIP of ₹10,000 and redeem it after 24 months, you must calculate the STCG for each instalment separately based on whether it has been held for less than 36 months.

Making Informed Decisions

Understanding STCG on debt mutual funds is vital for tax planning and making informed investment choices. While calculating taxes on these investments can seem daunting, using resources like an STCG tax calculator and consulting with financial advisors can simplify the process. As an investor, staying informed and using the available tools to optimise your tax liabilities is essential.

With this knowledge, you’re better equipped to navigate the taxation of your debt fund investments. Remember, the goal is not just to invest but to invest wisely, considering all financial implications, including taxes.

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What is the rate of STCG on debt funds?

The rate of Short-Term Capital Gains (STCG) on debt funds is based on the investor’s income tax slab. Unlike fixed rates for Long-Term Capital Gains, STCG is taxed according to the individual’s applicable income tax bracket.

How do you calculate capital gains tax on debt funds?

To calculate capital gains tax on debt funds, subtract the purchase price from the selling price of the fund units. The resulting figure is your capital gain, which is then taxed according to your income tax slab if it falls under STCG.

How do you show short-term capital gains on debt mutual funds in ITR?

Short-term capital gains from debt mutual funds should be reported in the Income Tax Return under the head ‘Income from Capital Gains.’ The specific section for reporting STCG varies based on the ITR form used.

Is there any change in taxation for debt funds post-April 1, 2023?

Yes, from April 1, 2023, debt funds no longer offer indexation benefits for calculating tax on capital gains. All gains are taxed based on the investor’s tax slab, irrespective of the holding period. However, investments made in debt funds before April 1, 2023, are still eligible for the indexation benefit for long-term capital gains.