The Hidden Tax Bill
You invested diligently for 15 years. Your equity mutual funds have grown beautifully. Then you click "Redeem" — and a 12.5% tax bill arrives on your profits. Understanding exactly how LTCG is calculated is critical to preserving your corpus during withdrawal.
LTCG vs. STCG: A Direct Comparison
| Short-Term Capital Gains (STCG) | Long-Term Capital Gains (LTCG) | |
|---|---|---|
| Holding Period | Less than 12 months | More than 12 months |
| Tax Rate | 20% | 12.5% |
| Exemption | None | ₹1.25 Lakhs per financial year |
| Strategy | Avoid at all costs — never sell equity held <1 year | Optimize using the ₹1.25L exemption annually |
Calculate your exact LTCG tax before redeeming.
Use plannF's Tax Analytics engine to model exactly how many units to redeem to stay within the ₹1.25L limit and minimize your tax bill.
See a Live DemoHow to Calculate LTCG Tax: Step by Step
Formula: LTCG Tax = (Total LTCG Profit − ₹1,25,000) × 12.5%
Example Scenarios
| Scenario | Invested | Value at Sale | LTCG Profit | Taxable Profit | Tax |
|---|---|---|---|---|---|
| Small gain | ₹5,00,000 | ₹6,10,000 | ₹1,10,000 | ₹0 (under ₹1.25L) | ₹0 |
| Medium gain | ₹10,00,000 | ₹15,00,000 | ₹5,00,000 | ₹3,75,000 | ₹46,875 |
| Large gain | ₹20,00,000 | ₹40,00,000 | ₹20,00,000 | ₹18,75,000 | ₹2,34,375 |
| SWP (₹12L yr) | Cost ₹8L, gain ₹4L | ₹12L SWP | ₹4,00,000 | ₹2,75,000 | ₹34,375 |
All examples assume: equity mutual fund held for 12+ months, redeemed in a single financial year, no prior LTCG gains in that year.
The Annual Tax Harvesting Strategy
Instead of waiting until you need the money, proactively harvest gains every March:
| Year | Action | Tax |
|---|---|---|
| March 2026 | Sell ₹1,24,999 of LTCG profit, immediately repurchase | ₹0 |
| March 2027 | Sell ₹1,24,999 of LTCG profit, immediately repurchase | ₹0 |
| Every subsequent March | Repeat | ₹0 |
After 5 years: ₹6.25 Lakhs of profit has been "reset" tax-free. Your new cost basis is higher — permanently reducing your future LTCG liability. With spousal LTCG harvesting, you double this to ₹2.5 Lakhs/year across two PAN cards.
The Grandfathering Clause (Pre-January 31, 2018 Investments)
If you invested in equity mutual funds before January 31, 2018, any gains up to that date are permanently grandfathered — tax-free. You pay LTCG only on growth that occurred after January 31, 2018.
| Investment Date | LTCG Tax Applies From |
|---|---|
| Before Jan 31, 2018 | Only gains after Jan 31, 2018 |
| After Jan 31, 2018 | Full gains above ₹1.25L exemption |
This grandfathering clause means long-term investors from before 2018 have a significantly lower effective tax rate on their old mutual fund units.
Never overpay LTCG tax again.
plannF tracks your exact unit cost basis across all mutual fund folios and calculates the optimal redemption plan to minimize LTCG tax every year.
Start Your Free PlanFAQs
1. Does the ₹1.25 Lakh LTCG exemption reset every year?
Yes — the ₹1.25 Lakh exemption is per financial year (April 1 to March 31). It does not carry forward. If you book only ₹50,000 in LTCG in one year, the remaining ₹75,000 exemption is lost — you cannot add it to next year's limit. This is why annual tax harvesting (selling exactly ₹1.24999 Lakhs every March and immediately repurchasing) is so important.
2. How is LTCG calculated if I invested through SIPs over multiple years?
With SIPs, each monthly installment has a different purchase date and NAV. The "FIFO (First In, First Out)" method is used for taxation — the units bought first are considered sold first. So your oldest SIP installments (which are likely long-term and have higher gains) are redeemed first. Use FIFO when planning which units to sell to optimize the ₹1.25L limit.
3. What is the LTCG tax on debt mutual funds vs. equity mutual funds?
Debt mutual fund gains are now taxed at your income tax slab rate (not LTCG rates) — regardless of holding period. This change was effective from April 2023. Only pure equity funds (65%+ equity allocation) qualify for 12.5% LTCG treatment with the ₹1.25L exemption. Balanced Advantage Funds and Equity Hybrid Funds (65%+ equity) also qualify.
4. Can I offset LTCG from mutual funds with capital losses from stocks?
Yes — Long-Term Capital Losses can offset Long-Term Capital Gains within the same financial year. If you have ₹3 Lakhs of LTCG from a mutual fund and ₹1 Lakh of LTCL from a stock loss, your taxable LTCG is only ₹2 Lakhs (minus ₹1.25L exemption = ₹75,000 taxable). Carry forward any remaining losses to the next 8 financial years. This is a key tax-loss harvesting strategy.
5. How does plannF calculate LTCG tax for annual SWP withdrawals?
plannF models each SWP redemption based on your portfolio's weighted average cost basis. For each monthly withdrawal, it splits the redemption into cost component (tax-free) and profit component (LTCG at 12.5% above ₹1.25L), projecting your full-year LTCG tax liability and flagging the optimal month to do your annual tax harvesting.
