How your gains are taxed when you sell
Equity, debt and crypto are taxed on entirely different rules. Knowing which applies changes when you sell — and sometimes whether you should.
Everything above assumes you are still investing. Eventually you sell, and what you keep depends on which asset it was and how long you held it.
Equity and equity mutual funds
The dividing line is twelve months.
Sell within twelve months and the profit is a short-term capital gain, taxed at a flat rate regardless of your income slab. Hold beyond twelve months and it becomes a long-term capital gain, taxed at a lower flat rate, with an annual exemption on the first tranche of long-term gains across all your equity holdings.
Two practical consequences follow.
Crossing the twelve-month mark matters. Selling at eleven months and selling at thirteen are taxed differently on the same profit. If you are close to the line and have no urgent need, waiting is usually worth more than the price movement you are trying to catch.
The annual exemption is use-it-or-lose-it. Some investors deliberately realise a portion of their long-term gains each year within the exempt limit and immediately reinvest, resetting their cost base upward without paying tax. This is legitimate and is usually called tax harvesting. It is worth understanding before you have a very large single gain to deal with.
Debt funds
Debt mutual funds bought after the rules changed no longer receive the favourable long-term treatment they once did. Gains are added to your income and taxed at your slab rate, whatever the holding period.
This matters for how you use them. A debt fund is now taxed much like a fixed deposit, so the case for holding one rests on liquidity and the absence of a lock-in rather than on tax efficiency. For a 30% taxpayer, the post-tax return on short-term debt is modest, which is another argument for keeping the emergency fund sized correctly and no larger.
Crypto and other virtual digital assets
Virtual digital assets sit under their own regime, and it is deliberately unforgiving.
- Gains are taxed at a flat 30%, regardless of your slab or holding period.
- Losses cannot be set off against any other income — not against other crypto gains, not against equity gains, not carried forward.
- A 1% TDS applies on transfers above a threshold.
The no-set-off rule is the one that surprises people. In equity, a loss on one holding can offset a gain on another, so only your net result is taxed. In crypto, every winning trade is taxed in full while losing trades give you nothing back. An investor who is up 40% on one asset and down 40% on another has made nothing overall and still owes tax.
That does not make holding crypto wrong. It does mean the tax treatment should shape your position size, and that frequent trading is considerably more expensive here than elsewhere.
Whatever you hold, the reporting obligation is yours. Gains must be declared in your ITR even where TDS has already been deducted, and foreign holdings carry additional disclosure requirements.
Rates and thresholds in this area are revised more often than the slabs themselves. Treat the structure above as durable and confirm the current numbers before you act on a large transaction.
Before you act on any of this
WealthSense publishes financial education, not financial advice. We are not a SEBI-registered investment adviser and nothing here is a recommendation to buy or sell any security. Every calculator uses an assumed rate of return that is illustrative only — real returns vary and can be negative. Mutual fund investments are subject to market risks; read all scheme-related documents carefully. Tax figures follow published slabs for the current financial year and ignore surcharge and individual circumstances. Please consult a qualified adviser before making decisions with your money.