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nism-series-va-section-111a-short-term-capital-gains-tax-rate[ MUTUAL FUND DISTRIBUTORS ]

What is the statutory tax rate applicable on Short-Term Capital Gains (STCG) arising from the redemption of equity-oriented mutual fund units held for not more than 12 months under Section 196 of the Income-tax Act, 2025 (the erstwhile Section 111A of the Income-tax Act, 1961) (post-Budget 2024 amendments)?

[ A ]Flat 15.0% (Pre-Budget 2024 legacy rate)

[ B ]Taxed at the investor's marginal income tax slab rate (up to 30%)

[ C ]Flat 20.0% (plus applicable surcharge and 4% cess, with zero basic exemption threshold)[ CORRECT ]

[ D ]Flat 12.5%

Takeaway

Option C is correct: Flat 20.0% (plus applicable surcharge and 4% cess, with zero basic exemption threshold)

Derivation

Section 196 of the Income-tax Act, 2025 (the erstwhile Section 111A of the Income-tax Act, 1961) governs equity-oriented mutual fund units held 12 months or less. The Finance (No. 2) Act, 2024 raised the flat STCG rate from 15.0% to 20.0%, and this rate applies to the entire gain — unlike LTCG under Section 198, STCG carries no basic exemption threshold before tax kicks in. Surcharge and the 4% Health and Education Cess are added on top of the 20.0% base rate. The exam frequently tests whether candidates are still anchored to the older 15.0% figure, or confuse this flat-rate, no-threshold STCG treatment with the slab-rate treatment that applies to debt funds under Section 76.

Why the others fail

A — Flat 15.0% (Pre-Budget 2024 legacy rate)

15.0% was the STCG rate before the Finance (No. 2) Act, 2024 raised it to 20.0% — using the old figure understates the actual tax liability on equity STCG.

B — Taxed at the investor's marginal income tax slab rate (up to 30%)

Marginal slab-rate taxation applies to deemed short-term gains on debt-oriented Specified Mutual Funds under Section 76, not to equity-oriented funds taxed under Section 196.

D — Flat 12.5%

12.5% is the concessional Long-Term Capital Gains rate under Section 198 for holdings beyond 12 months, not the flat Short-Term rate under Section 196.