Made ₹2 Lakh from ETFs? Here’s What You Owe in Taxes

Exchange-traded funds (ETFs) are steadily making their way into the investment mainstream. Thanks to their low expense ratios, transparency, and ease of access to multiple asset classes, more investors are beginning to view ETFs as a practical investment avenue. As interest continues to grow, it’s important to understand how ETFs are taxed in India.

The positive news? Taxation rules for ETFs have become more consistent. Since July 2024, all ETFs—regardless of whether they invest in equities, debt, commodities, or international markets—are classified as long-term if held for more than one year. This unified approach simplifies tax tracking.

However, while the classification is streamlined, the actual tax payable still depends on the nature of the ETF’s underlying investments.

Scenario 1: Manoj – Long-Term Capital Gain (Held for 2 Years)

Investment Details

• Amount Invested: ₹5,00,000

• Holding Period: 2 years → qualifies as long-term

• Total Return: ₹2,00,000

• Gains Eligible for Tax: ₹2,00,000 – ₹1,25,000 exemption = ₹75,000

Tax Calculation

• 12.5% on ₹75,000 = ₹9,375

Final Outcome for Manoj

• Tax Payable: ₹9,375

• Post-Tax Gains: ₹2,00,000 – ₹9,375 = ₹1,90,625

Scenario 2: Suresh – Short-Term Capital Gain (Held for 1 Year or Less)

Investment Details

• Amount Invested: ₹5,00,000

• Holding Period: 1 year → qualifies as short-term

• Total Return: ₹2,00,000

• Gains Eligible for Tax: Full ₹2,00,000 (no exemption for short-term gains)

Tax Calculation:

• 20% on ₹2,00,000 = ₹40,000

Final Outcome for Suresh

• Tax Payable: ₹40,000

• Post-Tax Gains: ₹2,00,000 – ₹40,000 = ₹1,60,000

Side-by-Side Comparison

Conclusion

ETF taxation in India has become more streamlined and investor-friendly, especially after the uniform rule was introduced in July 2024. Now, all ETFs—whether they invest in equities, debt, commodities, or global assets—are classified as long-term if held for more than one year.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Mutual Fund investments in the securities market are subject to market risks, read all the related documents carefully before investing.