Under the updated capital gains tax regime, what are the holding period thresholds, short-term capital gains (STCG) tax rate, and long-term capital gains (LTCG) tax rate for equity-oriented mutual funds?

[ A ]Holding period of 12 months; STCG is taxed at 20%, and LTCG is taxed at 12.50% on gains exceeding Rs. 1.25 lakh per financial year.[ CORRECT ]

[ B ]Holding period of 36 months; STCG is taxed at 10%, and LTCG is 100% tax-free without any ceiling.

[ C ]Holding period of 24 months; STCG is taxed at 30%, and LTCG is taxed at 20% with indexation benefits.

[ D ]Holding period of 6 months; STCG is taxed at 15%, and LTCG is taxed at 5% on all gains.

Takeaway

Option A is correct: Holding period of 12 months; STCG is taxed at 20%, and LTCG is taxed at 12.50% on gains exceeding Rs. 1.25 lakh per financial year.

Derivation

Under current capital gains tax provisions (applicable for redemptions on or after July 23, 2024): For equity-oriented mutual funds (investing >=65% in listed domestic equities), the holding period to qualify for long-term status is 12 months. Short-Term Capital Gains (STCG) are taxed at 20%. Long-Term Capital Gains (LTCG) are taxed at 12.50% on aggregate capital gains exceeding the basic exemption limit of Rs. 1.25 lakh per financial year. This question tests candidate knowledge of current tax rates. The primary pitfall is recalling older tax rates (15% STCG / 10% LTCG with Rs. 1 lakh exemption).

Why the others fail

B — Holding period of 36 months; STCG is taxed at 10%, and LTCG is 100% tax-free without any ceiling.

36 months was the historical holding period for debt funds, and equity LTCG is no longer completely tax-free.

C — Holding period of 24 months; STCG is taxed at 30%, and LTCG is taxed at 20% with indexation benefits.

24 months applies to unlisted/other assets, and indexation benefits have been removed under the simplified capital gains regime.

D — Holding period of 6 months; STCG is taxed at 15%, and LTCG is taxed at 5% on all gains.

The holding period for listed equities is 12 months (not 6 months), with STCG at 20% and LTCG at 12.50% above Rs. 1.25 lakh.