Taxation of Funds & Tax Harvesting

1. What you'll learn and why it matters

Chapter 13 covered how shares, F&O and dividends are taxed. Funds follow the same broad logic, but with their own twists. A debt fund bought in 2024 is taxed differently from the same fund bought in 2022. A gold ETF and a gold fund holding the same gold need different holding periods. An SWP and an IDCW plan can pay you the same cash and leave very different tax bills. Fund rules have also changed four times since 2023, so much of what you read online is out of date.

By the end of this chapter you will be able to:

• put any fund or ETF into one of three tax classes for tax year 2026-27, using a three-question flowchart;
• work out the tax on any redemption lot by lot (each SIP instalment is a separate purchase), including grandfathered units bought before February 2018;
• spot the events that are taxable sales even though no cash reaches you: switches, STPs, regular-to-direct moves;
• choose between IDCW (payouts) and growth + SWP (planned withdrawals), and between arbitrage funds, liquid funds and FDs, for your slab;
• run LTCG harvesting and tax-loss harvesting correctly, and know the cases where they do not pay;
• decide whether ELSS, NPS and other tax-saving products still make sense for you under the new regime;
• compute a full year's tax for a realistic portfolio, then cut it.

This chapter assumes you have read Chapter 13, parts 5–9 (slabs, the new regime, STCG/LTCG on shares, grandfathering, set-off). Fund basics (NAV, direct and regular plans, expense ratio, ETFs, debt fund types) are in Chapter 14. Asset allocation and tax-aware rebalancing follow in Chapter 16.

Section numbers. From 1 April 2026 the Income-tax Act, 2025 replaced the 1961 Act (Chapter 13 explains the switch). Rates carried over, but section numbers changed. Brokers, AMC statements and most articles still use the old numbers, so we give both, e.g. "s.76 (old s.50AA)".

2. Why funds are taxed differently: the pass-through

A mutual fund pools money from many investors and buys securities with it. Inside the fund, the manager buys and sells constantly: rebalancing an index, switching from one bond to another, moving between equity and debt in a balanced-advantage fund. If you made the same trades yourself, each sale would be a taxable event for you.

The law treats a SEBI-registered mutual fund as a pass-through: the fund's own income and gains are exempt (Schedule VII of the new Act, Table Sl. 20–21, old s.10(23D)). You pay tax only when you sell (redeem) units, or when the fund pays you an IDCW (income distribution). All the trading inside the fund is invisible to your tax return. The gain simply shows up in the NAV, and you are taxed on it once, when you exit.

Two consequences matter in practice:

1. Deferral. Gains inside the fund compound untaxed until you redeem. Money that would have gone to tax keeps earning.
2. The fund's class decides your rate, not what it holds on the day. A fund that keeps at least 65% in Indian equity is taxed entirely as equity, even though up to 35% of it may be bonds. If you held the same bonds directly, or in a separate debt fund, their gains would be taxed at your slab rate.

Common mistakes. (1) Assuming a fund's dividends from the shares it holds reach you as dividends. They do not: they stay in the NAV unless the fund declares an IDCW. (2) Thinking a "hybrid" is always taxed as equity. Only if it holds at least 65% in Indian equity.

3. The three tax classes for 2026-27

For tax purposes, every fund unit you sell in tax year 2026-27 belongs to one of three classes. The class depends on what the fund holds (its portfolio, averaged over the year) and, for debt funds only, on when you bought that unit.

Class 1: equity-oriented funds

A fund is equity-oriented if it keeps at least 65% of its money in equity shares of Indian companies listed on a recognised exchange, measured as the average over the year (s.198(8), old s.112A). Equity shares that are hedged with futures still count, which is why arbitrage funds qualify. So do most equity-savings funds and many balanced-advantage funds (BAFs), which hold over 65% "gross" equity and hedge part of it. A fund of funds (FoF) qualifies only if it puts at least 90% into units of an exchange-traded fund (ETF) that itself holds at least 90% listed Indian equity. A FoF that buys active equity funds does not qualify and falls into the "other" class.

Includes: equity funds, ELSS, Nifty/Sensex index funds, equity ETFs such as NIFTYBEES, arbitrage funds. Taxed exactly like listed shares: see the master table.

Class 2: specified mutual funds (debt), units bought from 1 Apr 2023

A specified mutual fund is one that keeps more than 65% in debt and money-market instruments (by the annual average of daily figures), or a FoF with 65% or more in such funds (s.76(5), old s.50AA). For units acquired on or after 1 April 2023, any gain is "deemed" short-term and taxed at your slab rate, however long you hold. No LTCG, no indexation, no exemption.

Includes: liquid, overnight, money-market, corporate-bond, gilt, banking & PSU, conservative-hybrid funds, debt ETFs such as LIQUIDBEES, and debt FoFs.

Class 3: other funds

Everything that is neither: gold and silver ETFs and FoFs, international funds, FoFs and ETFs (US, global), equity FoFs of active funds, hybrids holding 35–65% Indian equity, multi-asset funds below 65% Indian equity, and the newer income-plus-arbitrage FoFs (at most 65% in debt funds, the rest in arbitrage funds, built to land here). Debt-fund units bought before 1 April 2023 are also taxed as "other".

Gains are long-term after more than 12 months if the unit is listed (an ETF) and after more than 24 months if it is unlisted (a regular fund or FoF). LTCG is taxed at 12.5% with no indexation and no ₹1.25 lakh exemption (s.197, old s.112). Short-term gains go at your slab rate.

Add 4% health and education cess to every rate. Surcharge applies only above ₹50 lakh of income; on gains under s.196–198 it is capped at 15%, but slab-taxed debt-fund gains carry the full surcharge (up to 25% in the new regime). Tax year 2026-27 rules; unchanged by Budget 2026.

How to use this. Before buying any fund, find its tax class in the scheme information document (SID) or ask the AMC. For debt, a fund bought after April 2023 is no more tax-efficient than an FD. Its advantages are elsewhere: liquidity, no tax until you redeem (an FD's interest is taxed every year as it accrues) and the ability to offset losses (part 9).

Common mistakes. Calling every hybrid "equity" (check the 65%); assuming international FoFs get the 12-month rule (only listed ETFs do); treating your 2022 debt units like your 2024 ones; using indexation in a post-July-2024 sale.

4. Holding periods, the exemption, indexation and grandfathering

Holding period. "Long-term" means held for more than 12 (or 24) months, counted from the allotment date to the redemption date (s.2(101), old s.2(42A)). A unit allotted on 5 Sep 2025 becomes long-term on 6 Sep 2026, not 5 Sep 2026. For a mutual fund, the allotment date is the date whose NAV you got. For an ETF, it is the trade date.

The ₹1.25 lakh exemption is per person, per tax year, and shared between listed shares, equity funds and equity ETFs (s.198). It is applied after set-off of losses (part 9), and unused exemption is lost at 31 March. Since Budget 2025, the ₹12 lakh rebate of the new regime (s.156, old s.87A) cannot be used against tax on these special-rate gains (Chapter 13, part 5). It does cover slab-taxed debt-fund gains, which matters for low-income family members (part 12).

No indexation. Indexation raised your cost by the inflation index. It was removed for every fund sale from 23 Jul 2024. It survives only for land and buildings bought before that date.

Grandfathering for equity-fund units bought before 1 Feb 2018

Equity LTCG was fully tax-free until 31 Mar 2018. When it was taxed again, gains up to 31 Jan 2018 were protected. For units bought on or before 31 Jan 2018, the cost used is raised to the fair market value (FMV) on that date, but only up to the sale price (s.90(7)–(8), old s.55(2)(ac)). For mutual-fund units, the FMV is the NAV on 31 Jan 2018. For ETF units, which are listed, it is the highest traded price that day (as for shares in Chapter 13).

5. Lots and FIFO: how a SIP is taxed

Every purchase creates a lot: a date, a NAV and a number of units. A monthly SIP of four years creates 48 lots. When you redeem, the registrar (CAMS or KFintech) takes units first in, first out (FIFO): the oldest lot first, then the next. Each lot has its own holding period and its own gain. FIFO runs separately for each folio, each scheme, each plan (direct or regular) and each option (growth or IDCW). Your app's "average cost" is a convenience figure; tax is computed lot by lot.

How to use this. Download the capital-gains statement from your registrar before any large redemption: it lists every lot with its date, NAV and term. If you plan to redeem soon after a SIP instalment, check whether that instalment will be in the FIFO queue (it will not, unless you redeem everything older first).

Common mistakes. (1) Expecting to redeem "the new units that are in loss" from a long SIP. FIFO will not let you: the old gain lots go first (part 11). (2) Forgetting that ELSS lock-in is also per lot: each instalment unlocks three years after its own date.

6. Switches, STP, SWP and other taxable events

A redemption is a sale. Several transactions that feel like "moving money around" are redemptions too:

• Switch from one scheme to another, even within the same fund house: redeem from A, buy B. Taxable on A's gain.
• Regular → direct in the same scheme: the two plans are different units with different NAVs, so this is a redemption of the regular units and a fresh purchase of direct units. Taxable. Exit load may apply.
• Growth ↔ IDCW option of the same scheme: also a redemption and a purchase.
• STP (systematic transfer plan): a series of switches, usually from a liquid fund into an equity fund. Each transfer redeems some liquid-fund units, so each one is taxable. For a liquid fund bought after April 2023 the small gain on each transfer is slab income.
• SWP (systematic withdrawal plan): a series of redemptions. Each withdrawal is taxed only on the gain portion of the units sold (below).

Not taxable, because the law says they are not transfers (s.70(1), old s.47):

• Scheme mergers under SEBI's consolidation process, within the same class (equity into equity, or non-equity into non-equity): units of the merging scheme become units of the merged scheme. Your cost and holding period carry over (s.70(1)(zj), s.73(1) Sl. 8, s.2(101)(c)(B)(VII)).
• Plan consolidation by the fund within a scheme (s.70(1)(zk)). This is the fund merging plans, not you switching.
• Segregated portfolio ("side pocket") units, created when a fund separates a defaulted bond. Your original cost is split between the main and segregated units in proportion to their NAVs, and the holding period carries over (s.73(1) Sl. 11–12).
• Gifts, wills and inheritance (s.70(1)(b)): part 15.

SWP: only the gain portion is taxed

When you withdraw ₹W by selling units at today's NAV, part of that money is your own capital coming back. Only the rest is gain.

Common mistakes. Switching regular → direct in one go and paying a large LTCG bill that could have been spread across years (part 17 shows the trade-off). Starting an STP from a liquid fund without realising each transfer is a taxable redemption. Treating the whole SWP amount as income.

7. IDCW: income from funds, and why growth + SWP usually wins

IDCW (income distribution cum capital withdrawal, formerly "dividend") is money the fund pays out of its NAV. The name says what it is: partly your own capital handed back. After the record date the NAV falls by the amount paid, so you are no richer. But since 1 Apr 2020 the whole payout is taxed as your income at slab rate under "income from other sources". Two details for tax year 2026-27:

• TDS: the fund house deducts 10% if its IDCW payments to you exceed ₹10,000 in the tax year (s.393(1) Table Sl. 4(i), old s.194K; the limit was ₹5,000 until March 2025). Once you cross ₹10,000, TDS applies on the whole amount. TDS is a credit against your tax, not the final tax.
• No deductions: from tax year 2026-27, no expense (not even interest on money borrowed to invest) can be set against IDCW or dividend income (s.93, as amended by Budget 2026; see Chapter 13, part 10).

An SWP from the growth option of the same fund gives you the same cash, but taxed only on the gain portion, at capital-gains rates, and inside the ₹1.25 lakh exemption if the fund is equity-oriented.

When IDCW can make sense: if your total income stays within the ₹12 lakh rebate limit, slab-taxed IDCW may cost nothing. Some investors also value the discipline of fixed payouts. Even then, an SWP can be set to a fixed amount and date.

Common mistakes. Choosing IDCW "for regular income" in a high slab; reinvesting IDCW (IDCW reinvestment) and still paying tax on it; switching an old IDCW holding to growth without checking the capital gain on the switch.

8. ETFs versus mutual funds: STT, stamp duty, exit loads

For the same index, an ETF and an index fund are in the same tax class with the same rates. Equity funds and equity ETFs share the 12-month rule. For "other" funds the ETF's listing gives it the shorter 12-month rule (the gold example in part 3). The transaction charges differ:

ETF switches. There is no "switch" for an ETF: you sell on the exchange (a taxable sale) and buy another. For ETFs, sell one day and buy back the next trading day. A same-day sell and buy of the same ETF nets off as an intraday trade and does not reset your cost (Chapter 13, part 14).

9. Set-off and carry-forward with funds

The general rules are in Chapter 13, part 9: a short-term capital loss (STCL) can absorb any capital gain; a long-term capital loss (LTCL) only long-term gains; both carry forward for 8 tax years if you file your return by the due date. What is specific to funds:

• A gain on a specified MF is legally a short-term capital gain (s.76), so an STCL from shares or equity funds can absorb it. That is the most valuable use of an STCL: it cancels income that would otherwise be taxed at your slab rate (up to 31.2%).
• A loss on a specified MF is an STCL too, so it can absorb any gain, including equity LTCG.
• An LTCL (say from a gold ETF or a fund in loss) can absorb other-class LTCG (12.5% with no exemption) or equity LTCG. Equity LTCG under ₹1.25 lakh would have been tax-free anyway, but the law requires set-off before the exemption. When you have a choice, set the LTCL against the 12.5% gains with no exemption first.
• Capital losses never reduce salary, IDCW or interest income.
• You may set off in the order that suits you (STCL against slab-rate gains first). The ITR schedules let you allocate; check what your CA or tax software does.

10. LTCG harvesting in depth

LTCG harvesting means selling long-term equity-fund units each year to realise gains up to the unused ₹1.25 lakh exemption, then buying back. The tax on that ₹1.25 lakh is zero, and the re-purchase resets your cost higher, so that gain is never taxed later. Chapter 13 showed it with NIFTYBEES. Here is the fund version, with its extra details.

The fine print

• Clock reset. The re-bought units are short-term for 12 months. If you might need the money within a year, that portion would be taxed at 20% if sold.
• Exit load. Most index funds have none. Many active funds charge 1% within a year, and some charge for longer. Re-bought units restart the exit-load clock too.
• Same day or next day? For mutual funds you can redeem and buy on the same day, and there is no intraday netting for fund units. The redemption gets that day's NAV if placed before the 3 pm cut-off. The purchase gets that day's NAV only if your money reaches the fund house before the cut-off (SEBI ties purchase NAV to when funds are realised), so pay from your bank early in the day. A purchase a day later is also fine; you just carry one day of market move. For ETFs, buy back the next trading day (part 8).
• The exemption is shared with shares and equity ETFs. Add up your year's LTCG before you harvest.
• FIFO decides which units go. You cannot pick a high-cost lot to harvest.

When harvesting does not pay: exit loads

Couples: two PANs, two exemptions, and clubbing

The exemption is per person. If the same SIP had been split between two spouses, each investing their own income (₹5,000 a month each) and each harvesting their own ₹1–1.25 lakh, the tax due on 30 Sep 2026 would be ₹0 instead of ₹17,237, a further ₹17,056 better than one harvesting investor.

11. Tax-loss harvesting and the anti-avoidance rules

Tax-loss harvesting is the mirror image: redeem lots that are below cost, book the loss, and use it to cancel gains taxed this year. You then reinvest in a similar but different fund, so your market exposure barely changes.

Is this legal? Wash sales, GAAR and stripping rules

• No wash-sale rule. India has no rule like the US one that disallows a loss if you buy back within 30 days. A genuine sale at a real loss is a real loss.
• Substance still matters. Courts can disregard a "colourable device" whose only purpose is to avoid tax (the McDowell doctrine). The General Anti-Avoidance Rule (GAAR, Chapter XI of the new Act from s.178, old Chapter X-A) applies only where the tax benefit in a year exceeds ₹3 crore, so it will not touch a retail investor's harvesting. Keep it clean: real redemptions, real purchases, a record of why, and preferably a different fund for the re-purchase after loss harvesting.
• Bonus stripping (s.175(9)–(10), old s.94(8)): if you buy units within 3 months before a record date, receive bonus units, and sell the original units within 9 months at a loss while keeping the bonus units, the loss is ignored and added to the cost of the bonus units. Bonus units in mutual funds are rare now, but the rule exists.
• Dividend stripping (s.175(8), old s.94(7)): a loss on units bought within 3 months before a record date and sold within 9 months after it is ignored up to the IDCW received, but only if that IDCW was exempt. Since IDCW became taxable in 2020 this rarely applies. Buying just before an IDCW still makes no sense: the NAV drops by the payout and you pay slab tax on it.

12. Debt, gold and international funds; the year-end calendar

Gain harvesting only helps where there is an exemption to use. That means equity-oriented funds and shares. For other classes:

• Specified (post-2023) debt funds: gains are slab income whenever you sell. Harvesting gains brings tax forward and saves nothing. Loss harvesting is rare (debt NAVs seldom fall), but a loss would be an STCL usable against anything.
• Gold, silver, international, pre-2023 debt (other class): LTCG is 12.5% with no exemption, so harvesting gains just brings the 12.5% forward. Harvesting losses works as for equity.
• Low-income family members are the exception. A resident whose other income is below the ₹4 lakh basic exemption can use the unused part against STCG and LTCG (basic-exemption adjustment, s.196(2), s.197(2), s.198(3)). And the ₹12 lakh rebate covers slab-taxed debt-fund gains but not the 12.5% rate.

Year-end calendar

13. Tax-saving products: ELSS, NPS, PPF, EPF, SSY, SGB

"Tax-saving" products give a deduction from taxable income when you invest. Almost all of them work only under the old regime, which you must choose actively. The new regime (s.202, old s.115BAC) is the default and gives lower slabs and a ₹75,000 standard deduction instead.

ELSS and s.123 (old s.80C)

An ELSS (equity-linked savings scheme) is an equity fund with a 3-year lock-in per instalment. Investments in it count towards the ₹1.5 lakh deduction under s.123 and Schedule XV (old s.80C), along with EPF contributions, PPF, life-insurance premiums, home-loan principal, SSY, tax-saver FDs and children's tuition fees. When you redeem, ELSS is taxed as an ordinary equity fund. Varsity's ELSS chapter predates the new regime's dominance; the key question now is whether you should be in the old regime at all.

NPS: the deduction that survives in the new regime

Your employer's contribution to your NPS account is deductible up to 14% of basic salary plus dearness allowance (DA) in the new regime (10% in the old) under s.124 (old s.80CCD(2)). Your own contributions (old 80CCD(1) and the extra ₹50,000 of 80CCD(1B)) help only in the old regime. Combined employer contributions to NPS, EPF and superannuation above ₹7.5 lakh a year are taxable. If your employer offers it, restructuring ₹1,00,800 a year (14% of a ₹7.2 lakh basic) into employer NPS cuts the new-regime tax in our example from ₹1,50,800 to ₹1,29,834, saving ₹20,966, in exchange for money locked until 60. At exit, 60% of the corpus can be withdrawn tax-free and the annuity income is taxed at slab. PFRDA's newer exit options allow larger lump sums; their tax treatment is less settled, so check before you exit.

The debt-side comparison

For a long-term debt allocation, PPF's tax-free 7.1% beats a fully taxed debt fund for anyone above the 5% slab, as long as you can live with the lock-in and the cap.

Sovereign Gold Bonds (SGBs)

SGBs pay 2.5% a year interest (taxed at slab) plus the gold price. From 1 Apr 2026 (Budget 2026, s.70(1)(x)), the capital gain at redemption is exempt only if you subscribed at the original issue and held continuously until maturity (8 years). Bonds bought on the exchange, or redeemed early through RBI's window after 5 years, are now taxed: 12.5% LTCG if held more than 12 months (they are listed), slab otherwise. No new SGB tranches have been issued since February 2024.

14. Where to park cash: arbitrage vs liquid fund vs FD

Money for a near-term goal or an emergency fund wants safety and liquidity. Three common homes, each taxed differently:

• Arbitrage fund: buys shares and sells futures on them, earning the small gap. Returns are close to a liquid fund, but it is an equity-oriented fund: 20% if sold within 12 months, 12.5% after (inside the ₹1.25 lakh exemption if unused). Varsity calls this "the real arbitrage is the tax arbitrage". Returns can dip when futures premiums shrink, and many charge a small exit load within 30 days.
• Liquid fund: very short-term debt. Specified MF: slab rate on the gain.
• Bank FD: interest taxed at slab every year as it accrues.

15. Special cases: NRIs, minors, gifts, inheritance

16. Reporting: statements, AIS and the ITR

1. Capital-gains statement. Download it for the tax year from CAMS (for funds it services) and KFintech (for the rest), or from MF Central, which covers both. It lists every redemption lot by lot, with purchase date, NAV, grandfathered value where relevant, and STCG/LTCG. ETF and share sales come from your broker's tax P&L.
2. Consolidated Account Statement (CAS) from NSDL/CDSL or the registrars: all your holdings across fund houses and demat. Useful to check nothing is missing.
3. AIS (Annual Information Statement) and Form 26AS on the e-filing portal show redemptions and IDCW reported by the registrars, and TDS deducted. Reconcile them with the statements before filing.
4. Which form. As for shares (Chapter 13, part 13): ITR-1/ITR-4 are allowed if your only capital gains are equity LTCG up to ₹1.25 lakh with no losses to carry forward; otherwise ITR-2 (ITR-3 if you also have F&O or business income). Equity LTCG goes scrip by scrip (fund by fund) in the schedule known as Schedule 112A in the forms filed in 2026; the CBDT notifies new forms under the 2025 Act, so check the portal for the year you file.
5. File by the due date (31 July for ITR-2) to carry losses forward.

17. A full year for one investor

Meera is a salaried resident with a ₹18 lakh salary, on the new regime. Her employer deducts TDS on salary. Everything below is real NAVs and prices; all dates fall in tax year 2026-27 (to 30 Sep 2026, with nothing else happening later in the year).

She also runs a ₹20,000 SIP in the HDFC BSE Sensex Index Fund since Jan 2025 (part 11), untouched in the baseline.

18. In your framework, and try it yourself

Run these from the repository root (for example .venv/bin/python snippet.py). Snippet 1 uses the framework; snippets 2 and 3 need only pandas and the NAV files this chapter saved in data/extra/.

1. FIFO gains and a harvest plan with the framework (reproduces part 5):

import sys; sys.path.insert(0, ".")          # run from the repository root, so framework/ is importable
from framework.funds import load_nav, sip_simulate, fund_capital_gains, harvest_plan

nav = load_nav(120716)                        # UTI Nifty 50 Index Fund - Direct - Growth (cached in data/mf/)
sip = sip_simulate(nav, 10_000, "2023-01-01", end="2026-09-30", day=5)
lots = sip["lots"]                            # one row per instalment: date, nav, amount, units
sell_nav = nav.loc["2026-09-30"]
units = 200_000 / sell_nav                    # redeem Rs 2,00,000 on 30 Sep 2026
detail, summary = fund_capital_gains(lots, "2026-09-30", units, sell_nav, "equity_oriented")
print(detail.round({"units": 2, "gain": 2})[["buy_date", "units", "term", "gain"]].tail(3))
print({k: summary[k] for k in ["units", "ltcg", "stcg", "tax", "stt"]})
plan = harvest_plan(lots, sell_nav, "2026-09-30", "equity_oriented")
print(plan["note"], "| loss lots:", len(plan["loss_lots"]))
# -> ltcg about 31,572 (the framework ignores the small stamp duty in cost; part 5 gets 31,563.26), tax 0.0, 25 loss lots

2. A self-contained FIFO redemption (pandas only):

import pandas as pd

nav = pd.read_csv("data/extra/ch15_mf_120716_uti_nifty50_dir.csv", parse_dates=["date"]).set_index("date")["nav"]

def sip_lots(nav, amount, start, end, day=5, stamp=0.00005):
    rows = []
    for m in pd.date_range(start, end, freq="MS"):
        d = nav.index[nav.index.searchsorted(m.replace(day=day))]      # first NAV on/after the SIP date
        rows.append({"date": d, "amount": amount, "units": round(amount * (1 - stamp) / nav[d], 3)})
    return pd.DataFrame(rows)

def fifo(lots, sell_date, sell_nav, amount):
    left, out = amount / sell_nav, []
    for r in lots.itertuples():
        if left <= 0:
            break
        u = min(r.units, left); left -= u
        lt = pd.Timestamp(sell_date) > r.date + pd.DateOffset(months=12)
        out.append({"buy": r.date.date(), "units": u, "gain": u * sell_nav - u * r.amount / r.units,
                    "term": "LT" if lt else "ST"})
    return pd.DataFrame(out)

lots = sip_lots(nav, 10_000, "2023-01-01", "2026-09-30")
red = fifo(lots, "2026-09-30", nav["2026-09-30"], 200_000)
print(len(lots), "lots;", len(red), "used;", red.groupby("term")["gain"].sum().round(2).to_dict())
# -> 45 lots; 17 used; {'LT': 31563.26}

3. SWP gain portion and IDCW comparison (pandas only):

import pandas as pd

nav = pd.read_csv("data/extra/ch15_mf_120716_uti_nifty50_dir.csv", parse_dates=["date"]).set_index("date")["nav"]
buy_d = nav.index[nav.index.searchsorted(pd.Timestamp("2023-04-03"))]
units0 = round(1_000_000 * (1 - 0.00005) / nav[buy_d], 3)
cost_per_unit = 1_000_000 / units0
rows = []
for m in pd.date_range("2024-05-01", "2026-09-30", freq="MS"):
    d = nav.index[nav.index.searchsorted(m.replace(day=10))]
    rows.append({"date": d, "gain": 15_000 * (1 - cost_per_unit / nav[d])})
swp = pd.DataFrame(rows)
swp["fy"] = swp.date.apply(lambda d: d.year if d.month >= 4 else d.year - 1)
print(swp.groupby("fy")["gain"].sum().round(2))         # 2024: 46197.34, 2025: 57843.06, 2026: 26489.85
print("gain share of cash withdrawn:", round(swp.gain.sum() / (15_000 * len(swp)) * 100, 2), "%")   # 30.01 %

19. Practical checklist

• For every fund you hold, note its tax class (equity-oriented, specified, other) and, for debt funds, whether each lot was bought before or after 1 Apr 2023.
• Choose the growth option. If you need income, set up an SWP rather than an IDCW plan (unless your income is within the rebate limit).
• Before any redemption or switch, download the registrar's capital-gains statement and see which lots FIFO will take, their term and gain.
• Treat switches, STPs and regular → direct moves as sales. Spread a large switch across tax years to fit the ₹1.25 lakh exemption.
• Check exit-load dates. Do not harvest lots that still carry a load unless the gain exceeds about 7% (1% load) of the value sold.
• In February–March: total the year's equity LTCG from all sources, then harvest the unused exemption on long-term lots. Never harvest grandfathered units below their 31 Jan 2018 NAV.
• Book losses on funds in loss when you have gains to absorb, especially slab-taxed gains. Reinvest in a similar but different fund. Keep a record.
• Place year-end transactions by about 25 March, before the 3 pm cut-off.
• Compare the old and new regimes each year before buying ELSS or other 80C-style products. Ask your employer about NPS under s.124.
• For gold or international exposure you may need within 2 years, prefer a listed ETF (12-month rule) over a FoF (24-month rule).
• Reconcile AIS and Form 26AS with your statements, and file by the due date to carry losses forward.
• Keep records: statements, contract notes, harvest notes, gift deeds. Ask a CA for anything large or unusual.

20. Key takeaways

21. Quiz and exercises

22. Sources

Zerodha Varsity (concepts; explained here in our own words and updated where Varsity's figures are older): Markets and Taxation, ch. 4: Taxation for Investors (LTCG, STCG, indexation, FIFO; mentions the old 36-month debt rule) · ch. 3: Classifying your market activity · ch. 7: ITR forms · Personal Finance, Equity Scheme (Part 2): ELSS and s.80C · Arbitrage Funds ("the real arbitrage is the tax arbitrage") · Exchange-traded funds (ETF) · The Debt Funds (Part 4) · NPS tax rules & benefits (80CCD(1), (1B), (2); 14% in the new regime; ₹7.5 lakh cap).

Law and official sources (checked 2 Oct 2026): Income-tax Act, 2025 (Gazette): s.2(101) holding periods; s.70(1)(b), (x), (zj), (zk); s.73(1) Table Sl. 1, 8, 10–12; s.76 specified MF; s.90(7)–(8) grandfathering; s.99 clubbing; s.123 and Schedule XV; s.124; s.156 rebate; s.175(8)–(10); Chapter XI GAAR; s.196–198 and s.198(8); s.202; s.393(1) Table Sl. 4 and s.393(2) Table Sl. 10; Schedule III Sl. 17; Schedule VII · Income-tax Act, 2025 as amended by Finance Act, 2026 (Income Tax Department) · Income Tax Department: old s.50AA and the specified-MF definition from 1 Apr 2025 · Memorandum explaining the Finance Bill, 2026 (no interest deduction against IDCW/dividends; SGB exemption restricted to original subscribers held to maturity) · AMFI: Tax regime for mutual funds · AMFI best-practice guideline 116: transfer of units held in SoA mode (Aug 2024).

Secondary sources used to cross-check rates and practice: ClearTax: STT rates (0.001% on equity fund/ETF sales; unchanged by Budget 2026) · ClearTax: SGB capital gains from 1 Apr 2026 · Taxmann: Budget 2026 curtails SGB tax-free status · Taxguru: TDS on MF income raised to ₹10,000 (Budget 2025) · Taxguru: interest deduction barred against dividend/MF income (Budget 2026) · Upstox: Budget 2026 and mutual-fund taxation · Angel One: income-plus-arbitrage FoFs, 12.5% after 24 months · Upstox: ICICI Pru BAF IDCW ₹0.07 per unit (2026) · INDmoney: Parag Parikh Flexi Cap exit load · INDmoney: UTI Nifty 50 Index Fund, exit load nil, TER 0.20% · Paisabazaar: SBI FD rates, September 2026 · Small-savings rates for Oct–Dec 2026 (PPF 7.1%, SSY 8.2%) · Motilal Oswal: TDS for NRIs, 2026.

Data: daily NAVs from AMFI via mfapi.in, saved as data/extra/ch15_mf_<code>_*.csv (UTI Nifty 50 Index Direct 120716 and Regular 100822; Parag Parikh Flexi Cap 122639; Kotak Arbitrage 119771; HDFC Liquid 119091; HDFC Corporate Bond 118987; Motilal Oswal Nasdaq 100 FoF 145552; ICICI Pru BAF Growth 120377 and Monthly IDCW 122236; HDFC BSE Sensex Index 119065; Nippon India Gold Savings 118663), to 30 Sep 2026. GOLDBEES closes from NSE via Yahoo Finance (data/extra/GOLDBEES.csv). All calculations and figures: course/scripts/ch15_figures.py with course/scripts/ch15_lib.py; numbers saved to data/extra/ch15_numbers.json. Examples are historical analysis for education, not recommendations or tax advice.