How much LTCG tax do you pay on ₹5 lakh profit from equity mutual funds?

Equity mutual funds held over one year are taxed as Long-Term Capital Gains. Budget 2024 changed the rules significantly — the rate moved from 10% to 12.5% and the exemption limit moved from ₹1 lakh to ₹1.25 lakh per financial year. On a ₹5 lakh equity MF redemption with the entire amount as gain, taxable LTCG is ₹3.75 lakh — tax payable is about ₹46,875.

The 1-year holding rule still applies. Sell before 12 months and you pay 20% Short-Term Capital Gains (raised from 15% in Budget 2024) regardless of slab. For Indian investors holding equity for the long haul, the 12.5% LTCG rate is still lower than the income tax slab for anyone earning above ₹7 lakh — so MF holdings remain tax-advantaged versus FDs.

Two planning levers help. First, stagger redemptions across financial years to repeatedly use the ₹1.25 lakh exemption — a couple can redeem ₹2.5 lakh of gains tax-free per year by splitting investments. Second, switch to direct plans early; the 1% expense ratio difference over 15-20 years dwarfs the LTCG hit.