Is Mutual Fund Withdrawal Taxable in India 2025?

If you're like many Indian investors, you've probably asked yourself, “Is money withdrawn from a mutual fund taxable?” The short answer is yes, but the amount of tax — and even whether you pay tax at all — depends on various factors such as the type of mutual fund, your holding period, and current tax laws.

This guide breaks down everything you need to know, including the recent changes, practical examples, and smarter alternatives like taking loans against mutual funds that help you avoid this tax altogether.

Understanding Mutual Fund Withdrawals in India

What Is a Mutual Fund Redemption?

When you “withdraw” money from a mutual fund, you’re essentially redeeming units you own. The amount you receive depends on the Net Asset Value (NAV) on the date of redemption. The profit you make (if any) is called capital gains, and it is this gain — not the principal amount — that is subject to taxation.

Types of Mutual Funds and Their Tax Treatment

• Equity Mutual Funds: Invest at least 65% in equities. Tax rules differ based on holding period.
• Debt Mutual Funds: Primarily invest in bonds, fixed-income instruments.
• Hybrid Funds: Mix of equity and debt; taxation depends on their asset allocation.

Taxation Rules for Mutual Fund Withdrawals in India

Tax on Equity Mutual Fund Withdrawals

• Short-Term Capital Gains (STCG): If you redeem within 1 year, you pay 15% STCG tax on gains.
• Long-Term Capital Gains (LTCG): Gains beyond ₹1 lakh in a financial year are taxed at 10% (without indexation) if held for over a year.

Tax on Debt Mutual Fund Withdrawals

A major shift came in April 2023:

• All capital gains, irrespective of holding period, are now added to your income and taxed as per your slab.
• No indexation benefit available anymore.

Hybrid and International Fund Taxation

• Equity-oriented Hybrid Funds follow the same rules as equity mutual funds.
• Funds with less than 65% equity exposure follow debt fund taxation.

Tax Implications Based on Holding Period

Short-Term Capital Gains (STCG)

• For equity funds, STCG applies for holdings under 12 months.
• For debt funds, gains are taxed as regular income post-2023.

Long-Term Capital Gains (LTCG)

• Applicable on equity funds held for over 12 months.
• Only gains over ₹1 lakh are taxed at 10%, and no indexation benefit applies.

TDS on Mutual Fund Redemptions

When Is TDS Applicable on Mutual Funds?

• As of FY 2020-21, no TDS on capital gains for resident individuals from mutual funds.
• TDS may apply for NRIs or in cases where mutual fund units are sold via certain platforms.

Exemptions from TDS

• Indian residents with total income below the taxable limit can submit Form 15G or 15H to avoid TDS on income.

How to Calculate Tax on Withdrawals

Let’s break it down:

Real-Life Example: Equity Fund Redemption

You invest ₹2,00,000 in an equity mutual fund and withdraw it after 2 years for ₹3,50,000.

• Capital Gain = ₹1,50,000
• Exempt = ₹1,00,000
• Taxable LTCG = ₹50,000
• Tax Amount = ₹5,000 (10%)

Reporting Mutual Fund Gains in ITR

Required Forms and Schedule

• File ITR-2 if you’ve only invested, or ITR-3 if you have business income.
• Use Schedule CG for capital gains reporting.

Common Mistakes to Avoid While Withdrawing Funds

• Ignoring exit load and NAV impact
• Redeeming during tax-inefficient times (e.g., just before long-term gains start)
• Not factoring in income tax slab changes

Loans Against Mutual Funds: A Tax-Efficient Alternative

How Quicklend Helps Investors

Instead of triggering taxes via redemptions, investors can unlock liquidity through Quicklend’s Loan Against Mutual Funds:

• No capital gains are realized
• Funds continue to grow while you borrow
• Instant, paperless approval via Quicklend

Conclusion

So, to sum it up — yes, money withdrawn from a mutual fund is taxable, but the details depend on your fund type, how long you've held it, and your overall tax profile. With tax rules changing rapidly, understanding them is essential.

And if you want tax-free liquidity, consider taking a loan against your mutual funds — a smart way to access funds without triggering taxes.

This is general guidance. For personalized loan advice, contact our team at Quicklend.