Tax on FD, Mutual Funds and Stocks in India (2026-27)

FD interest is taxed at your slab rate every year. Equity mutual funds and listed shares are taxed only when you sell: 20% if held up to 12 months, and 12.5% on gains above ₹1.25 lakh a year if held longer. Debt funds bought after 1 April 2023 are taxed at slab rate on sale. Dividends are taxed at slab rate. These rates apply for tax year 2026-27, as of October 2026, under the Income-tax Act, 2025.

Quick comparison table (tax year 2026-27)

Add 4% health and education cess to all of these, and surcharge if your income is above ₹50 lakh (capped at 15% on equity gains and dividends).

New section numbers to recognise

The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. The rates did not change, but the references did:

• Equity STCG at 20%: Section 196 (old Section 111A)
• Other LTCG at 12.5%: Section 197 (old Section 112)
• Equity LTCG above ₹1.25 lakh: Section 198 (old Section 112A)
• Debt fund gains deemed short-term: Section 76 (old Section 50AA)
• Interest and dividends: income from other sources, Section 92 (old Section 56)
• TDS on FD interest, dividends and most non-salary payments: Section 393 (old 194A, 194 and others)
• Interest deduction for savings account (₹10,000) and for senior citizens (₹50,000): Section 153 (old 80TTA and 80TTB), old regime only

Sales made before 1 April 2026 stay under the 1961 Act and its section numbers.

Fixed deposits and RDs

FD interest is taxable on accrual, so a cumulative FD that pays out only at maturity is still taxed year by year. Many people pay tax only at maturity and end up with mismatches against their AIS.

TDS. Banks deduct 10% TDS when interest from that bank exceeds ₹50,000 in the tax year (₹1 lakh for senior citizens). The threshold is per bank, across all your deposits, and once crossed TDS applies to the whole interest. Without a PAN, TDS is 20%. TDS is only an advance; if your slab is 20% or 30%, you pay the difference when filing.

Avoiding TDS. If your total income is below the taxable limit, you can submit the self-declaration form to the bank (Form 15G/15H, being merged into a new form under the Income-tax Rules, 2026). Do not submit it if your income is taxable.

Senior citizens. Under the old regime, a resident senior can deduct up to ₹50,000 of bank and post office interest (Section 153, old 80TTB). Compare options in PPF vs FD vs ELSS and our FD ladder guide.

Equity mutual funds and shares

A fund is "equity-oriented" if it keeps at least 65% in Indian listed equity. Index funds, ELSS, large-cap, flexi-cap and equity ETFs all qualify.

• Held 12 months or less: STCG at 20%, no exemption.
• Held more than 12 months: LTCG at 12.5% on total equity LTCG above ₹1.25 lakh in the tax year, with no indexation.
• Each SIP instalment is a separate purchase. Units are redeemed first-in, first-out, so some units may be long-term and others short-term in the same redemption.
• Grandfathering: For shares and equity funds bought before 1 February 2018, the cost can be taken as the 31 January 2018 price if higher.
• Rebate does not apply: Tax on these special-rate gains is payable even if your total income is under ₹12 lakh. Residents whose other income is below the basic exemption limit can, however, use the unused limit against these gains.

For the full mutual fund rules, see capital gains tax on mutual funds.

Debt funds, gold and international funds

Debt funds (more than 65% in debt and money-market instruments) bought on or after 1 April 2023 are taxed at slab rate whatever the holding period. Units bought before that date get 12.5% LTCG if held more than 24 months.

Gold ETFs, gold funds, international funds and hybrid funds with 35% to 65% equity are taxed at 12.5% without indexation if held more than 24 months (12 months for listed units such as ETFs), and at slab rate otherwise.

Dividends, buybacks and trading

• Dividends are added to income and taxed at slab rate. The IDCW (dividend) option of a mutual fund is usually less tax-efficient than growth for people in higher slabs.
• Buybacks: The Union Budget 2026 moved buyback proceeds back to capital gains treatment for shareholders, from tax year 2026-27, with higher effective rates for promoters. Check the broker's tax statement for how each buyback is reported.
• Intraday trading is speculative business income. F&O is non-speculative business income, filed in ITR-3. STT on futures and options was raised from 1 April 2026.

Worked example: ₹10 lakh in an FD vs an equity fund (illustrative)

Rahul is in the 30% slab under the new regime and invests ₹10 lakh.

FD at 7% for one year

• Interest: ₹70,000
• Tax at 30% + 4% cess: ₹21,000 + ₹840 = ₹21,840
• TDS deducted by the bank (interest > ₹50,000): ₹7,000; Rahul pays the remaining ₹14,840 when filing
• Post-tax gain: ₹48,160 (post-tax return 4.8%)

Equity index fund held three years, value ₹13,25,000 (illustrative)

• LTCG: ₹3,25,000. Assume he redeems the entire holding in one year and has no other equity LTCG.
• Taxable LTCG: ₹3,25,000 − ₹1,25,000 = ₹2,00,000
• Tax at 12.5% + cess: ₹25,000 + ₹1,000 = ₹26,000
• Post-tax gain: ₹2,99,000 over three years

The equity figure is a projection, not a forecast; equity returns can be negative. The point is the structure: FD interest is taxed yearly at full slab rate, while equity gains are taxed once, at a lower rate, after an annual exemption. Test FD maturity values with the FD calculator.

Key takeaways

• As of October 2026, FD and RD interest is taxed at slab rate every year, with 10% TDS above ₹50,000 per bank (₹1 lakh for seniors).
• Equity shares and funds: 20% STCG up to 12 months, 12.5% LTCG above ₹1.25 lakh a year after that, now under Sections 196 and 198.
• Debt funds bought after 1 April 2023 are taxed at slab rate, but only on redemption.
• Dividends are taxed at slab rate, with TDS above ₹10,000 per payer.
• The new-regime rebate does not cover special-rate capital gains.