Understanding taxation on mutual funds and PMS is one of the most common concerns for investors. The rules differ for equity, debt, and hybrid funds, and each category has its own tax treatment for capital gains and dividends. 

PMS investments add another layer of complexity because securities are held in the investor’s name and taxed accordingly.

Before investing, every individual asks:

• How are mutual funds taxed when redeemed?

• What are the dividend taxation rules in 2025?

• How do PMS and NRI investments get taxed in India?

This blog explains the complete taxation rules for mutual funds and PMS in India in 2025. It breaks down capital gains, dividend taxation, SIP rules, and NRI taxation in a clear and practical way to help you plan better.

Key Takeaways

• Mutual funds in India are taxed based on type (equity, debt, or hybrid) and holding period.

• Dividends from mutual funds and PMS are fully taxable at slab rates.

• Debt fund gains are taxed as per slab rates; indexation is removed post-April 2023.

• NRIs must account for TDS and DTAA while investing in mutual funds and PMS.

• Ckredence Wealth helps HNIs & NRIs with PMS taxation, compliance, and reporting.

What Is Taxation on Mutual Funds in India?

Mutual fund taxation in India depends on fund type, holding period, and nature of income (capital gains or dividend). Unlike fixed deposits, mutual funds do not deduct tax at source (TDS) for residents, except in some cases of dividends. Instead, investors must self-declare while filing ITR.

For investors, taxation can be divided into:

• Capital Gains Tax: Profit earned on redemption of units.

• Dividend Tax: Income distributed by the fund house.

• Securities Transaction Tax (STT): Applicable on equity mutual fund transactions.

These rules ensure that mutual fund investors pay taxes according to their investment style and horizon.

Variables Determining Mutual Fund Taxation

Variables determining mutual fund taxation in India in 2025 include the following key factors:

Type of Fund

• Equity-Oriented Mutual Funds: Invest at least 65% in Indian equities.

• Debt-Oriented Mutual Funds: Invest less than 65% in equities.

• Hybrid Mutual Funds: Blend of equity and debt, taxation depends on equity proportion.

Other categories include Gold Mutual Funds, International Mutual Funds, and Fund of Funds.

Capital Gains

• Short-Term Capital Gains (STCG): Gains from the sale within a defined short holding period (usually ≤12 months for equity).

• Long-Term Capital Gains (LTCG): Gains from the sale after the short holding period.

Holding Period

Determines whether gains are short-term or long-term.

• For equity and equity-oriented funds, the holding period is 12 months.

• For debt funds and others (post-April 2023 investments), the holding period distinction was largely removed; all gains are taxed as per the slab.

• For some funds, LTCG requires holding periods of more than 24 months (especially for hybrid and international funds after April 2025).

Date of Purchase

Different tax rules apply based on whether units were purchased before or after key dates like April 1, 2023, and April 1, 2025.

Capital Gains Exemption Limits

The LTCG exemption limit of ₹1.25 lakh per financial year is applicable for equity and equity-oriented funds.

Dividend Income

• Dividends from mutual funds are taxable as per the investor’s slab rates.

• TDS of 10% applies if dividends from a single fund exceed ₹10,000 in a financial year.

Investor’s Residential Status

Resident Individuals versus NRIs, which affects applicable TDS rates and taxation rules.

Tax Rates

• STCG for equity funds is taxed at 20% (post-July 2024).

• LTCG on equity funds is taxed at 12.5% above the exemption.

• Debt fund gains (post-April 2023) are taxed as per slab rates.

These variables combined determine the applicable tax treatment on mutual fund income and gains for FY 2025-26

How Do Mutual Funds Generate Profits?

Mutual funds earn returns through capital appreciation and dividends/interest income.

• Capital appreciation comes when NAV increases due to market performance.

• Dividend or interest income comes when companies or debt securities distribute profits.

Both are subject to taxation depending on fund type and investor profile.

Taxation of Dividends from Mutual Funds

Here are the details regarding the taxation of dividends from mutual funds in India in 2025:

Taxation in the Hands of Investors

Dividend income from mutual funds is fully taxable as per the investor’s applicable income tax slab rate.

This applies to resident individuals, Hindu Undivided Families (HUFs), and domestic companies differently, depending on their tax brackets.

TDS on Dividends

Mutual fund Asset Management Companies (AMCs) deduct TDS at 10% if the aggregate dividend income from a mutual fund exceeds ₹10,000 in a financial year (up from ₹5,000 before April 1, 2025).

For Non-Resident Indians (NRIs), TDS on dividends is deducted at 20%, with possible relief under Double Taxation Avoidance Agreement (DTAA) if relevant documents are submitted.

If relevant documents are not submitted by NRIs, higher TDS is deducted, which can then be claimed as a refund during income tax filing.

Dividend Distribution Tax (DDT) Abolished

Prior to April 1, 2020, mutual funds paid DDT, shielding investors from dividend tax.

Since the Finance Act 2020, DDT was abolished, and tax liability was shifted directly to investors, making dividends taxable at their slab rates.

Tax Payment Timing

Dividend income is taxable in the year it is declared, distributed, or paid to investors, whichever is earlier.

Interim dividends are taxable in the year of actual receipt.

Impact on Investors

TDS deducted can be claimed as a credit against the overall tax liability.

Dividends below ₹10,000 per year from a mutual fund will not have TDS deducted as of FY 2025-26, improving liquidity for smaller investors.

Taxation on PMS (Portfolio Management Services)

Unlike mutual funds, PMS taxation is more complex because securities are directly held in the investor’s name.

1. Capital Gains: Taxed similarly to direct equity—15% for STCG (<1 year), 10% for LTCG (>1 year above ₹1 lakh).

2. Dividends: Fully taxable as per slab.

3. Business Income: If PMS is treated as a business activity, profits may be taxed under “Income from Business”.

👉 Ckredence Wealth provides clarity on PMS tax rules by offering consolidated capital gains statements, audit support, and compliance guidance.

Mutual Fund and PMS Taxation for NRIs

Here are the detailed points on Mutual Fund and PMS (Portfolio Management Services) taxation for NRIs in India as per 2025:

Capital Gains Tax for NRIs:

Equity Mutual Funds:

• Short-Term Capital Gains (STCG): Taxed at 20% plus applicable surcharge and cess if held for 12 months or less.

• Long-Term Capital Gains (LTCG): Taxed at 12.5% plus surcharge and cess for gains exceeding ₹1.25 lakh in a financial year if held for more than 12 months.

These rates apply for transactions on or after July 23, 2024. For earlier transactions in FY 2024-25, STCG was 15% and LTCG 10%.

NRIs can claim exemptions under the Double Taxation Avoidance Agreement (DTAA) where applicable.

Debt Mutual Funds

• Gains are taxed as per the investor’s applicable income tax slab rate.

• No distinction between short-term and long-term for units purchased on or after April 1, 2023.

• For units purchased before April 1, 2023, LTCG applies if held for more than 36 months; otherwise, slab rates apply.

PMS Investments

Taxed similarly to direct equity investments.

• STCG on equity shares held for 12 months or less is taxed at 20%.

• LTCG beyond 12 months is taxed at 12.5% above the exemption threshold (₹1.25 lakh).

• Tax Deducted at Source (TDS):

• TDS on gains from mutual fund redemptions/transactions for NRIs is:

• 20% on STCG from equity funds.

• 12.5% on LTCG from equity funds exceeding ₹1.25 lakh.

• 20% on dividend income from mutual funds.

• TDS can be reduced if NRI provides a tax residency certificate and forms to avail DTAA benefits.

Dividends

Dividend income from mutual funds is taxable at slab rates for NRIs.

TDS is deducted at 20% on dividends by mutual fund houses.

Other Points

• NRIs must file an Income Tax Return (ITR) in India if their total income exceeds the basic exemption limit.

• Capital gains arising from the transfer of mutual fund units are subject to tax even if the payment or transfer takes place outside India.

👉 Ckredence Wealth’s NRI Desk helps streamline PMS and mutual fund taxation with cross-border planning.

Securities Transaction Tax (STT)

STT is levied on equity-oriented funds during purchase/sale.

• 0.001% on redemption of equity mutual funds.

• 0.001% on the purchase/sale of PMS equity securities.

Though small, it impacts large-scale transactions and must be accounted for.

Tax-Saving Strategies for Investors

Investors can legally reduce tax liability through planning.

Tax-Saving ELSS Funds

• Investments in Equity Linked Savings Scheme (ELSS) qualify for a ₹1.5 lakh deduction under Section 80C.

• A 3-year lock-in period applies.

Tax Harvesting: Book profits up to ₹1 lakh in equity funds each year to avoid LTCG tax.

Capital Loss Set-Off

• Losses can be adjusted against gains in the same year.

• Carry forward unadjusted losses for 8 years.

Example Strategy

If you made a ₹1.2 lakh gain in equity funds, redeem ₹1 lakh before March 31 to save 10% tax on the excess.

How to File Taxes on Mutual Funds and PMS

• Choose the Correct ITR Form: ITR-2 for individuals with capital gains.

• Report Capital Gains: Use Form 26AS or AIS for accuracy.

• Disclose Dividends Separately: Under “Income from Other Sources”.

• PMS Reporting: A Consolidated statement is provided by the portfolio manager.

Ckredence helps clients file accurate returns by providing end-to-end tax support with portfolio data, reconciliation, and audit-ready statements.

Why Should You Choose Ckredence Wealth?

Investors don’t just need tax clarity; they need a trusted partner who manages compliance while growing wealth.

At Ckredence Wealth, we help HNIs and NRIs with:

Solutions That Matter:

• Customised PMS portfolios with tax-efficient allocation.

• Clear statements for capital gains and dividends.

• Audit and filing support with compliance experts.

Proven Expertise for Affluent Investors:

• Equity and debt PMS strategies optimised for post-tax returns.

• Multi-asset allocation including mutual funds, REITs, and AIFs.

• Dedicated NRI desk for cross-border taxation.

Our Advisory Edge:

• Regular portfolio audits and tax planning sessions.

• End-to-end estate and succession planning.

• Transparent reporting with zero hidden charges.

With Ckredence, investors gain clarity, compliance, and growth all under one advisory roof.

Conclusion

Taxation on mutual funds and PMS in India directly shapes the actual returns investors receive. Equity funds, debt funds, and hybrid funds follow different tax rules, while PMS taxation often resembles direct equity investments. NRIs face additional requirements such as TDS and compliance with cross-border tax laws. 

For many, these rules feel complex, but proper planning can make them manageable. That’s where expert guidance matters. At Ckredence Wealth, we simplify taxation, provide clarity on capital gains and dividends, and design tax-efficient investment strategies for HNIs and NRIs. 

If you are looking to optimise returns while staying compliant, connect with our advisory team today and let us help you plan smarter, invest better, and keep more of what you earn.

FAQs

Q1. How is income tax on mutual fund redemption calculated in India?

Income tax on mutual fund redemption is based on fund type. Equity gains above ₹1 lakh attract 10% LTCG.

Q2. What is the taxation on debt mutual funds after April 2023?

Debt mutual funds are taxed as per slab rates. Indexation benefits are no longer available post-2023 rule change.

Q3. How are dividends from mutual funds and PMS taxed in India?

Dividends from mutual funds and PMS are taxable as per the income tax slab. Fund houses deduct TDS above ₹5,000.

Q4. What are the tax implications for NRIs investing in mutual funds in India?

NRIs face TDS on mutual fund gains and dividends. They can claim DTAA benefits for double taxation relief.