The 2025 Union Budget introduced new tax rules for mutual fund investments under the Income Tax Act. Whether you are a resident investor or an NRI, these updates affect ITR filing, capital gains classification, SWP withdrawals, and how each type of fund is taxed. This article helps decode the changes so that investors can better understand the tax implications of their holdings.
The taxability of mutual funds depends on 3 main factors: the type of mutual fund, the duration for which it is held, and the investor’s income bracket. Capital gains arise when mutual fund units are sold at a profit. These gains are classified as either short-term or long-term, depending on the holding period.
To qualify as equity funds, at least 65% of the portfolio must be in domestic equities.
Debt mutual funds are those with less than 35% equity exposure.
These funds invest more than 65% in equities and are taxed like equity funds.
These funds invest less than 35% in equities and are taxed like debt funds.
Balanced hybrid funds with equity exposure between 35% and 65% follow a mixed tax treatment.
These funds generally have equity exposure of less than 35%.
Since the removal of Dividend Distribution Tax in 2020, all dividends are added to the investor’s income and taxed as per their slab rate.
Read More: ITR Filing 2025: Why You Should Wait Till June 15, 2025.
SWPs are treated as redemptions, and tax liability depends on the type of capital gains triggered.
NRIs are taxed based on the Double Taxation Avoidance Agreement between India and their country of residence.
The 2025 updates to mutual fund taxation aim to simplify and unify tax treatments across fund categories. Investors should remain informed about how their mutual fund transactions are classified for tax purposes and ensure proper reporting while filing their ITR.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
Published on: May 27, 2025, 5:38 PM IST
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