The capital gains tax regime introduced after the Union Budget 2024 has brought a more uniform tax structure for several asset classes. Long-term capital gains (LTCG) are generally taxed at 12.5%, while short-term capital gains (STCG) continue to vary depending on the type of investment and whether securities transaction tax (STT) applies. According to reports from Mint, this represents a significant shift from previous taxation frameworks across different asset classes.
ETFs have a significant tax advantage due to their unique creation/redemption mechanism that uses in-kind exchanges of securities rather than cash transactions. This process typically doesn't trigger capital gains taxes, making ETFs historically distribute fewer capital gains than mutual funds. When authorized participants redeem ETF shares, they receive a basket of securities instead of cash, preventing the fund from selling securities and realizing taxable capital gains. As reported by State Street Global Advisors, this mechanism allows ETFs to maintain lower tax burdens during the holding period, similar to owning a house where taxes are only paid upon sale.
For equity mutual funds, exchange-traded funds (ETFs) and stocks, the holding period required to qualify as a long-term investment is more than 12 months. STCG on these assets is taxed at 20%, while LTCG is taxed at 12.5% on gains exceeding the applicable annual exemption threshold. As reported by Mint, gold ETFs, REITs and InvITs also qualify for LTCG treatment after a holding period of more than 12 months, with gold ETFs subject to investor's applicable slab rate for STCG and LTCG taxed at 12.5%. ETFs offer additional tax efficiency through their in-kind redemption process that prevents frequent capital gains distributions.
The taxation of debt mutual funds depends on when the investment was made. Debt mutual funds purchased before 1 April 2023 qualify for LTCG treatment after a holding period of more than 24 months and are taxed at 12.5%. Investments made on or after 1 April 2023 are subject to taxation at the investor's applicable slab rate. According to Mint, listed bonds held for more than 12 months qualify as long-term capital assets, with short-term gains taxed according to the investor's income-tax slab and long-term gains taxed at 12.5%.
For physical gold, overseas mutual funds and fund-of-funds, the LTCG holding period is more than 24 months, with long-term gains taxed at 12.5% and short-term gains taxed at slab rates. Foreign equities and international ETFs also require a holding period of more than 24 months to qualify for LTCG treatment. Long-term gains are taxed at 12.5%, while short-term gains are taxed according to the investor's applicable slab rate. As reported by Mint, real estate taxation differs based on purchase date, with properties bought after 23 July 2024 subject to 12.5% LTCG tax rate after being held for more than 24 months.
The new tax regime comes as ETFs have become a major force in the U.S. investment market, with total ETF assets reaching $13.4 trillion as of end-2025, accounting for 30% of U.S. investment company assets. According to Investment Company Institute, there were 4,495 ETFs in the U.S. as of end-2025, with 1,970 index ETFs managing $11.5 trillion and 2,454 actively managed ETFs holding $1.4 trillion. The changes mean investors need to consider not only the asset class but also the purchase date and holding period when calculating their potential capital gains tax liability. The new regime introduces a more streamlined approach to capital gains taxation across different investment categories, requiring careful planning based on investment timelines and asset types.
