Exchange Traded Funds (ETFs) have become one of the most popular investment options in India — but understanding their taxation is critical before you file your ITR for AY 2026-27.
An ETF is a basket of securities (stocks, bonds, gold, etc.) that trades on a stock exchange like NSE or BSE. It tracks an underlying index or asset class and offers low expense ratios, high transparency, and intraday liquidity.
Equity ETF Taxation (AY 2026-27)
An equity ETF qualifies as an equity-oriented fund if it invests at least 65% of its assets in equity shares of domestic listed companies.
Short-Term Capital Gain (STCG): Holding period less than 12 months — taxed at 20% flat under Section 111A.
Long-Term Capital Gain (LTCG): Holding period 12 months or more — taxed at 12.5% under Section 112A on gains exceeding ₹1,25,000 in a financial year. No indexation benefit available.
Gold ETF Taxation (AY 2026-27)
Gold ETFs are classified as non-equity funds. Finance Act 2024 revised the LTCG holding period from 36 months to 24 months (effective 23 July 2024).
Held less than 24 months: STCG taxed at applicable slab rate. Held 24 months or more: LTCG taxed at 12.5% under Section 112 — no indexation benefit.
Example: Mr. Arjun bought 100 units of Gold ETF at ₹480/unit on 1 April 2022, sold at ₹620/unit on 1 August 2025. Holding ~40 months (LTCG). Capital gain: ₹14,000. Tax: 12.5% = ₹1,750 plus surcharge and cess.
Silver ETF Taxation
Silver ETFs (permitted by SEBI from November 2021) are taxed same as Gold ETFs. STCG at slab rate if held under 24 months; LTCG at 12.5% (no indexation) if held 24 months or more.
Debt ETF Taxation — Finance Act 2023 Change
Debt ETFs (Bharat Bond ETF, G-Sec ETFs, Corporate Bond ETFs) were impacted by Finance Act 2023 which removed indexation benefit.
Units purchased on or after 1 April 2023: All gains taxable at slab rate regardless of holding period. Units purchased before 1 April 2023 held more than 24 months: LTCG at 20% with indexation (grandfathering).
International ETF Taxation
International ETFs (Nasdaq 100, S&P 500) are classified as non-equity funds. Gains taxed at slab rate for units purchased on or after 1 April 2023.
Key Takeaways for ITR Filing AY 2026-27
1. Equity ETFs held over 12 months: 12.5% LTCG above ₹1.25 lakh exemption. 2. Gold/Silver ETFs held over 24 months: 12.5% LTCG, no indexation. 3. Debt ETFs post April 2023: Slab rate on all gains. 4. Always check Form 26AS and broker capital gains statement before filing. 5. Short-term losses can be set off against both STCG and LTCG; long-term losses only against LTCG.