Financial planners say investors should focus on post-tax returns, not just headline yields, as taxes, exemptions and TDS can significantly affect actual gains.
Choosing the right investment is no longer just about earning higher returns. Taxation has become an equally important factor, as different financial products—from stocks and mutual funds to fixed deposits, gold and government securities—are subject to different tax rules depending on the holding period and nature of income.
A tax reckoner for FY2025-26 (Assessment Year 2026-27) outlines the latest tax treatment across popular investment options, helping investors understand how capital gains and income from various asset classes are taxed.
Listed equities and equity mutual funds
Listed equity shares and equity-oriented mutual funds (with at least 65% exposure to equities) continue to enjoy concessional capital gains taxation.
If investments are held for more than 12 months, gains qualify as long-term capital gains (LTCG) and are taxed at 12.5% on gains exceeding ₹1.25 lakh in a financial year. Investments sold within 12 months attract short-term capital gains (STCG) tax of 20%.
Equity ETFs listed on stock exchanges follow the same tax treatment.
Equity Linked Savings Schemes (ELSS) continue to offer tax deductions under Section 80C, subject to the overall deduction limit, while carrying a mandatory three-year lock-in period.
Debt investments
Taxation of debt-oriented mutual funds depends on when the investment was made.
Debt mutual funds purchased on or after April 1, 2023 are taxed according to the investor's applicable income tax slab, irrespective of the holding period, as they no longer qualify for long-term capital gains benefits.
However, debt funds acquired before April 1, 2023 continue to enjoy grandfathered tax treatment under specified conditions based on the holding period and date of redemption.
Interest earned from bank fixed deposits (FDs), recurring deposits (RDs) and post office deposits is fully taxable at the investor's slab rate. Banks deduct tax at source (TDS) once annual interest crosses the prescribed threshold.
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Gold investments
Tax rules differ depending on how investors own gold.
For physical gold, gains become long-term after 24 months, while shorter holding periods result in taxation according to the investor's slab.
Gold ETFs, being listed securities, qualify for long-term capital gains taxation after 12 months, while gold mutual funds follow separate rules depending on the purchase date.
Among gold products, Sovereign Gold Bonds (SGBs) continue to enjoy one of the most attractive tax benefits. Capital gains arising on redemption with the Reserve Bank of India at maturity are completely exempt from tax, although the annual 2.5% interest remains taxable according to the investor's slab.
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Bonds, government securities and foreign assets
Capital gains from listed corporate bonds, non-convertible debentures (NCDs), government securities, Treasury Bills and State Development Loans (SDLs) are taxed according to their applicable holding periods and prevailing tax provisions.
Similarly, foreign stocks, ADRs and GDRs follow a separate tax framework from domestic equities and may require additional disclosures in income tax returns.
Income from futures and options (F&O) trading is generally treated as business income and taxed at the applicable slab rate, with tax audit provisions applying in certain cases.
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Why taxation matters
Financial planners say investors should evaluate post-tax returns instead of focusing only on headline yields. The same pre-tax return can translate into significantly different outcomes after accounting for capital gains tax, slab rates, exemptions and TDS provisions.
Before redeeming investments, investors should review the holding period, applicable tax rates and available exemptions to optimise post-tax returns. Since tax laws are subject to change, experts recommend verifying the latest provisions under the Income Tax Act or consulting a qualified tax advisor before making investment decisions.
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Published on: Jun 26, 2026 4:28 PM IST
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