{"id":31081,"date":"2026-10-12T07:06:23","date_gmt":"2026-10-12T07:06:23","guid":{"rendered":"https:\/\/wp-api.pocketful.in\/blog\/?post_type=mutual-funds&#038;p=31081"},"modified":"2026-10-12T07:06:42","modified_gmt":"2026-10-12T07:06:42","slug":"indexation-in-mutual-funds","status":"publish","type":"mutual-funds","link":"https:\/\/wp-api.pocketful.in\/blog\/mutual-funds\/indexation-in-mutual-funds\/","title":{"rendered":"Indexation in Mutual Funds: Tax Rules in 2026"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">Investing in mutual funds can yield good returns after a few years, but inflation cannot be ignored. Previously, the benefit of indexation was available when calculating taxes on certain investments to account for the impact of inflation. If you want to understand what indexation in mutual funds is, it is essential to grasp not only the old rules but also how mutual funds are taxed today.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-transparent ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/wp-api.pocketful.in\/blog\/mutual-funds\/indexation-in-mutual-funds\/#What_Is_Indexation_in_Mutual_Funds\" title=\"What Is Indexation in Mutual Funds? \">What Is Indexation in Mutual Funds? <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/wp-api.pocketful.in\/blog\/mutual-funds\/indexation-in-mutual-funds\/#How_Did_Indexation_Work_Understand_With_an_Example\" title=\"How Did Indexation Work? Understand With an Example\u00a0\">How Did Indexation Work? Understand With an Example\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/wp-api.pocketful.in\/blog\/mutual-funds\/indexation-in-mutual-funds\/#Is_Indexation_Available_on_Mutual_Funds_in_India_in_2026\" title=\"Is Indexation Available on Mutual Funds in India in 2026?\u00a0\">Is Indexation Available on Mutual Funds in India in 2026?\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/wp-api.pocketful.in\/blog\/mutual-funds\/indexation-in-mutual-funds\/#Indexation_Benefit_on_Equity_Mutual_Funds_What_Investors_Should_Know\" title=\"Indexation Benefit on Equity Mutual Funds: What Investors Should Know\u00a0\">Indexation Benefit on Equity Mutual Funds: What Investors Should Know\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/wp-api.pocketful.in\/blog\/mutual-funds\/indexation-in-mutual-funds\/#Indexation_vs_Capital_Gains_What_Is_the_Difference\" title=\"Indexation vs Capital Gains: What Is the Difference?\u00a0\">Indexation vs Capital Gains: What Is the Difference?\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/wp-api.pocketful.in\/blog\/mutual-funds\/indexation-in-mutual-funds\/#How_to_Calculate_Mutual_Fund_Capital_Gains_Without_Indexation\" title=\"How to Calculate Mutual Fund Capital Gains Without Indexation\u00a0\">How to Calculate Mutual Fund Capital Gains Without Indexation\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/wp-api.pocketful.in\/blog\/mutual-funds\/indexation-in-mutual-funds\/#Why_Was_Indexation_Important_for_Investors\" title=\"Why Was Indexation Important for Investors?\u00a0\">Why Was Indexation Important for Investors?\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/wp-api.pocketful.in\/blog\/mutual-funds\/indexation-in-mutual-funds\/#Common_Mistakes_Investors_Make_About_Indexation\" title=\"Common Mistakes Investors Make About Indexation\u00a0\">Common Mistakes Investors Make About Indexation\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/wp-api.pocketful.in\/blog\/mutual-funds\/indexation-in-mutual-funds\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/wp-api.pocketful.in\/blog\/mutual-funds\/indexation-in-mutual-funds\/#Frequently_Asked_Questions_FAQs\" title=\"Frequently Asked Questions (FAQs)\">Frequently Asked Questions (FAQs)<\/a><\/li><\/ul><\/nav><\/div>\n<h2 id=\"h-what-is-indexation-in-mutual-funds\" class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_Is_Indexation_in_Mutual_Funds\"><\/span>What Is Indexation in Mutual Funds? <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\" id=\"h-what-is-indexation-in-mutual-funds-indexation-is-a-process-in-which-the-purchase-price-of-an-investment-is-adjusted-to-account-for-inflation-previously-the-impact-of-inflation-could-be-factored-in-when-calculating-profits-for-tax-purposes-on-certain-eligible-investments-the-government-s-cost-inflation-index-cii-was-used-for-this-purpose\">Indexation is a process in which the purchase price of an investment is adjusted to account for inflation. Previously, the impact of inflation could be factored in when calculating profits for tax purposes on certain eligible investments. The government&#8217;s <a href=\"https:\/\/www.pocketful.in\/blog\/cost-inflation-index\/\">Cost Inflation Index (CII)<\/a> was used for this purpose.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Example:<\/strong> Suppose you invested Rs. 1 lakh in a qualifying investment and sold it for Rs. 1.6 lakh. Without indexation, your profit would be Rs. 60,000. If, under the old rules, the purchase price had become Rs. 1.2 lakh after indexation, the profit considered for tax purposes would have been Rs. 40,000.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Please note that this example illustrates the old rules. Under current regulations, the benefit of indexation is generally not available for mutual funds.<\/p>\n\n\n\n<h2 id=\"h-how-did-indexation-work-understand-with-an-example\" class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_Did_Indexation_Work_Understand_With_an_Example\"><\/span>How Did Indexation Work? Understand With an Example\u00a0<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Previously, for certain eligible investments, the purchase price was adjusted for inflation using indexation. The government&#8217;s Cost Inflation Index (CII) was used for this purpose. Consequently, the adjusted price rather than the actual purchase price was used when calculating the tax.<\/p>\n\n\n\n<h3 id=\"h-indexation-formula\" class=\"wp-block-heading has-medium-font-size\">Indexation Formula<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Under the old rules, indexation was calculated using this formula:<\/p>\n\n\n\n<h4 id=\"h-indexed-cost-original-cost-sale-year-cii-purchase-year-cii\" class=\"wp-block-heading\"><strong>Indexed Cost = Original Cost \u00d7 (Sale Year CII \/ Purchase Year CII)<\/strong><\/h4>\n\n\n\n<p class=\"wp-block-paragraph\">Here, Original Cost refers to the initial purchase price of the investment, and &#8216;CII&#8217; refers to the Cost Inflation Index for the relevant financial year.<\/p>\n\n\n\n<h3 id=\"h-example-of-indexation-calculation\" class=\"wp-block-heading has-medium-font-size\">Example of Indexation Calculation<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Suppose an eligible long-term investment was purchased for Rs. 1,00,000 in the financial year 2018-19 and sold for Rs. 1,60,000 in the financial year 2023-24. The official CII for these years was 280 and 348, respectively.<\/p>\n\n\n\n<figure class=\"wp-block-table has-small-font-size\"><table><thead><tr><th class=\"has-text-align-left\" data-align=\"left\">Description<\/th><th class=\"has-text-align-left\" data-align=\"left\">Amount<\/th><\/tr><\/thead><tbody><tr><td class=\"has-text-align-left\" data-align=\"left\">Initial investment<\/td><td class=\"has-text-align-left\" data-align=\"left\">Rs. 1,00,000<\/td><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">Selling price<\/td><td class=\"has-text-align-left\" data-align=\"left\">Rs. 1,60,000<\/td><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">CII of the year of purchase<\/td><td class=\"has-text-align-left\" data-align=\"left\">280&nbsp;<\/td><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">CII for the year of sale<\/td><td class=\"has-text-align-left\" data-align=\"left\">348&nbsp;<\/td><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">Purchase price after indexation<\/td><td class=\"has-text-align-left\" data-align=\"left\">Rs. 1,24,286 (approximately)<\/td><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">Profit after indexation<\/td><td class=\"has-text-align-left\" data-align=\"left\">Rs. 35,714 (approx.)<\/td><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">Profit without indexation<\/td><td class=\"has-text-align-left\" data-align=\"left\">Rs. 60,000<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">In this example, the calculated profit is reduced by approximately \u20b924,286 due to indexation. However, this example illustrates the old rules; this formula cannot generally be applied to mutual fund investments sold on or after July 23, 2024.<\/p>\n\n\n\n<h2 id=\"h-is-indexation-available-on-mutual-funds-in-india-in-2026\" class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Is_Indexation_Available_on_Mutual_Funds_in_India_in_2026\"><\/span>Is Indexation Available on Mutual Funds in India in 2026?\u00a0<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Generally, the benefit of indexation is not available when calculating tax on mutual fund gains in 2026. However, the tax liability depends on the fund category and applicable regulations.<\/p>\n\n\n\n<h3 id=\"h-indexation-benefit-on-equity-mutual-funds\" class=\"wp-block-heading has-medium-font-size\">Indexation Benefit on Equity Mutual Funds<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">If you have invested in equity mutual funds, indexation is not factored into the calculation of gains upon sale. Under the rules governing long-term capital gains (LTCG), the portion of eligible LTCG exceeding \u20b91.25 lakh in a financial year is taxed at 12.5%. Short-term gains are taxed at 20%, subject to applicable conditions.<\/p>\n\n\n\n<h3 id=\"h-what-about-debt-mutual-funds\" class=\"wp-block-heading has-medium-font-size\">What About Debt Mutual Funds?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">For debt mutual funds, the fund category and the date of investment are crucial factors. Units of &#8220;specified mutual funds&#8221; (as defined under Section 50AA) purchased on or after April 1, 2023, are treated as short-term capital assets for tax purposes. These are taxed according to the investor&#8217;s applicable tax slab.<\/p>\n\n\n\n<figure class=\"wp-block-table has-small-font-size\"><table><thead><tr><th class=\"has-text-align-left\" data-align=\"left\">Mutual fund categories<\/th><th class=\"has-text-align-left\" data-align=\"left\">Benefit of indexation<\/th><\/tr><\/thead><tbody><tr><td class=\"has-text-align-left\" data-align=\"left\">Equity Mutual Funds<\/td><td class=\"has-text-align-left\" data-align=\"left\">Not available<\/td><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">Specified debt funds covered under Section 50AA<\/td><td class=\"has-text-align-left\" data-align=\"left\">Not available<\/td><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">Other Mutual Funds<\/td><td class=\"has-text-align-left\" data-align=\"left\">Verification in accordance with relevant tax rules is necessary.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 id=\"h-indexation-benefit-on-equity-mutual-funds-what-investors-should-know\" class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Indexation_Benefit_on_Equity_Mutual_Funds_What_Investors_Should_Know\"><\/span>Indexation Benefit on Equity Mutual Funds: What Investors Should Know\u00a0<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">When investing in equity mutual funds, looking only at returns is not enough; it is also essential to understand the tax implications upon sale. When calculating capital gains on equity funds, the purchase price is not adjusted for inflation.<\/p>\n\n\n\n<h3 id=\"h-how-much-tax-is-levied-on-equity-mutual-funds\" class=\"wp-block-heading has-medium-font-size\">How much tax is levied on equity mutual funds?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">If the conditions applicable to the specific equity fund and transaction are met, tax is levied as follows<\/p>\n\n\n\n<figure class=\"wp-block-table has-small-font-size\"><table><thead><tr><th>Type of capital gain<\/th><th>Applicable tax rate<\/th><\/tr><\/thead><tbody><tr><td>Short-Term Capital Gain (STCG)<\/td><td>20%<\/td><\/tr><tr><td>Long-Term Capital Gain (LTCG)<\/td><td>12.5% \u200b\u200bon eligible total gains exceeding \u20b91.25 lakh.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h3 id=\"h-what-should-an-investor-keep-in-mind\" class=\"wp-block-heading has-medium-font-size\">What should an investor keep in mind?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Before selling units of an equity mutual fund, check the purchase date, sale date, and holding period. This will help determine whether the profit is short-term or long-term and which tax rules apply to it.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Read Also:<\/strong> <a href=\"https:\/\/www.pocketful.in\/blog\/mutual-funds\/rupee-cost-averaging-in-sip\/\">Rupee Cost Averaging in SIP: Meaning, Benefits &amp; Examples<\/a><\/p>\n\n\n\n<h2 id=\"h-indexation-vs-capital-gains-what-is-the-difference\" class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Indexation_vs_Capital_Gains_What_Is_the_Difference\"><\/span>Indexation vs Capital Gains: What Is the Difference?\u00a0<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Indexation and capital gains are two different things. Capital gain is the profit made upon selling an investment, whereas indexation was a method used under older tax rules to adjust the purchase price in line with inflation.<\/p>\n\n\n\n<figure class=\"wp-block-table has-small-font-size\"><table><thead><tr><th>Basis of difference<\/th><th>Indexation\u00a0<\/th><th>Capital Gains<\/th><\/tr><\/thead><tbody><tr><td>Meaning<\/td><td>Adjusting the purchase price for inflation<\/td><td>Profit from the sale of an investment<\/td><\/tr><tr><td>Objective<\/td><td>Incorporating the impact of inflation into tax calculations<\/td><td>Determining the profit or loss from an investment<\/td><\/tr><tr><td>Calculation<\/td><td>Based on CII, if applicable<\/td><td>Based on the selling price and purchase price<\/td><\/tr><tr><td>Existing rules<\/td><td>Generally not available on mutual funds.<\/td><td>Calculations are made in accordance with applicable tax regulations.<\/td><\/tr><tr><td>Example<\/td><td>Under the old regime, a purchase price of \u20b91 lakh could become \u20b91.2 lakh after indexation.<\/td><td>Selling an investment of \u20b91 lakh for \u20b91.6 lakh would result in an initial capital gain of \u20b960,000.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 id=\"h-how-to-calculate-mutual-fund-capital-gains-without-indexation\" class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_to_Calculate_Mutual_Fund_Capital_Gains_Without_Indexation\"><\/span>How to Calculate Mutual Fund Capital Gains Without Indexation\u00a0<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">To determine the profit made from selling mutual fund units, subtract the purchase cost of those units from the sale proceeds. Subsequently, tax is calculated in accordance with applicable tax regulations.<\/p>\n\n\n\n<h3 id=\"h-capital-gains-calculation-formula\" class=\"wp-block-heading has-medium-font-size\">Capital Gains Calculation Formula<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Capital Gain = Redemption Value \u2212 Cost of Acquisition<\/p>\n\n\n\n<h3 id=\"h-example-mutual-fund-redemption\" class=\"wp-block-heading has-medium-font-size\">Example: Mutual Fund Redemption<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Suppose you invested \u20b980,000 in a mutual fund and, after some time, received \u20b91,10,000 by selling the units.<\/p>\n\n\n\n<figure class=\"wp-block-table has-small-font-size\"><table><thead><tr><th>Description<\/th><th>Amount<\/th><\/tr><\/thead><tbody><tr><td>Purchase price of the investment<\/td><td>\u20b980,000<\/td><\/tr><tr><td>Amount received from the sale of units<\/td><td>\u20b91,10,000<\/td><\/tr><tr><td>Total Capital Gain<\/td><td>\u20b930,000<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">In this example, your capital gain is \u20b930,000. However, the rate at which the entire profit is taxed will depend on the fund category, the holding period, and applicable tax rules.<\/p>\n\n\n\n<h3 id=\"h-what-should-you-check-before-redemption\" class=\"wp-block-heading has-medium-font-size\">What should you check before redemption?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Before selling your units, be sure to check the purchase date, the sale amount, and the fund&#8217;s tax category. If you <a href=\"https:\/\/www.pocketful.in\/mutual-funds\/start-sip\">invested via SIP,<\/a> the purchase date for each installment may differ; therefore, it would be incorrect to assume a uniform holding period for all the units.<\/p>\n\n\n\n<h2 id=\"h-why-was-indexation-important-for-investors\" class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Why_Was_Indexation_Important_for_Investors\"><\/span>Why Was Indexation Important for Investors?\u00a0<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Previously, indexation aided in calculating taxes on certain eligible investments by accounting for the impact of inflation.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Understanding the impact of inflation<\/strong>: Prices rise over time, which can erode the purchasing power of money. Indexation was a method to incorporate this change into tax calculations.<\/li>\n\n\n\n<li><strong>Potential reduction in taxable profit<\/strong>: For eligible investments, indexation effectively increased the purchase price. This could lower the capital gains subject to taxation.<\/li>\n\n\n\n<li><strong>Useful for long-term investments<\/strong>: For certain eligible long-term investments, the cumulative impact of inflation over several years could be factored into the purchase price.<\/li>\n\n\n\n<li><strong>Understanding investment costs<\/strong>: Indexation allowed investors to see how their investment cost changed when adjusted for inflation.<\/li>\n\n\n\n<li><strong>Assistance with tax planning<\/strong>: Before selling eligible investments, investors could estimate their potential tax liability by considering indexation and applicable tax rules.<\/li>\n\n\n\n<li><strong>Distinguishing between nominal profit and real gain<\/strong>: The profit realized from a sale and the purchasing power retained after accounting for inflation are distinct concepts. Under the old rules, indexation helped account for this distinction during tax calculations.<\/li>\n<\/ul>\n\n\n\n<h2 id=\"h-common-mistakes-investors-make-about-indexation\" class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Common_Mistakes_Investors_Make_About_Indexation\"><\/span>Common Mistakes Investors Make About Indexation\u00a0<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Investors often harbor certain misconceptions regarding indexation. It is important to understand these to avoid errors in tax calculation when selling mutual funds.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Assuming indexation applies to every mutual fund<\/strong>: The same tax rules do not apply to all mutual funds. Therefore, determining indexation eligibility solely based on the fund&#8217;s name is incorrect.<\/li>\n\n\n\n<li><strong>Believing old tax rules still apply<\/strong>: While indexation benefits were previously available for certain eligible investments, under current regulations, it cannot be considered a standard benefit for mutual funds.<\/li>\n\n\n\n<li><strong>Assuming long-term investments are automatically eligible for indexation<\/strong>: Merely holding an investment for a long period does not automatically grant indexation benefits; the holding period and indexation eligibility are distinct concepts.<\/li>\n\n\n\n<li><strong>Treating all SIP units as identical<\/strong>: In an SIP, separate units are purchased with each installment. Consequently, their purchase dates and holding periods may differ, which impacts tax calculations.<\/li>\n\n\n\n<li><strong>Estimating tax based solely on the profit amount<\/strong>: A profit of \u20b950,000 does not mean every investor will face the same tax liability; factors such as the fund category, purchase and sale dates, and applicable tax rules must also be considered.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Read Also:<\/strong> <a href=\"https:\/\/www.pocketful.in\/blog\/mutual-funds\/what-is-capital-protection-fund\/\">What is a Capital Protection Fund?<\/a><\/p>\n\n\n\n<h2 id=\"h-conclusion\" class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">When <a href=\"https:\/\/www.pocketful.in\/mutual-funds\">investing in mutual funds<\/a>, looking only at the returns is not enough; understanding the applicable taxes is also crucial. While indexation previously aided in tax calculations for certain eligible investments, the benefit is generally not available for mutual funds now. Therefore, before selling your units, be sure to check your fund&#8217;s category and the applicable tax rules to avoid any issues later.<\/p>\n\n\n\n<figure class=\"wp-block-table has-small-font-size\"><table><thead><tr><th class=\"has-text-align-left\" data-align=\"left\">S.NO.<\/th><th class=\"has-text-align-left\" data-align=\"left\">Check Out These Interesting Posts You Might Enjoy!<\/th><\/tr><\/thead><tbody><tr><td class=\"has-text-align-left\" data-align=\"left\">1<\/td><td class=\"has-text-align-left\" data-align=\"left\"><a href=\"https:\/\/www.pocketful.in\/blog\/mutual-funds\/what-is-smart-sip\/\">Smart SIP: Meaning, How It Works, Benefits &amp; Risks<\/a><\/td><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">2<\/td><td class=\"has-text-align-left\" data-align=\"left\"><a href=\"https:\/\/www.pocketful.in\/blog\/mutual-funds\/what-is-power-sip\/\">Power SIP: Meaning, How It Works, Benefits &amp; Risks<\/a><\/td><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">3<\/td><td class=\"has-text-align-left\" data-align=\"left\"><a href=\"https:\/\/www.pocketful.in\/blog\/mutual-funds\/mutual-fund-churning\/\">Mutual Fund Churning: Meaning, Causes, Risks &amp; How to Avoid<\/a><\/td><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">4<\/td><td class=\"has-text-align-left\" data-align=\"left\"><a href=\"https:\/\/www.pocketful.in\/blog\/mutual-funds\/dividend-reinvestment-plan\/\">Dividend Reinvestment Plan (DRIP): Meaning, Benefits &amp; How It Works<\/a><\/td><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">5<\/td><td class=\"has-text-align-left\" data-align=\"left\"><a href=\"https:\/\/www.pocketful.in\/blog\/mutual-funds\/what-is-a-balanced-fund\/\">What Is a Balanced Fund? Meaning, Benefits &amp; Risks<\/a><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 id=\"h-frequently-asked-questions-faqs\" class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Frequently_Asked_Questions_FAQs\"><\/span>Frequently Asked Questions (FAQs)<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n<div class=\"saswp-faq-block-section\"><ol style=\"list-style-type:none\"><li style=\"list-style-type: none\"><h3 class=\"\">What Is Indexation in Mutual Funds?<\/h3><p class=\"saswp-faq-answer-text\">Indexation was a method used to adjust the purchase price of an investment for inflation; it previously applied to certain eligible investments.<\/p><li style=\"list-style-type: none\"><h3 class=\"\">Is Indexation Available on Mutual Funds in 2026?<\/h3><p class=\"saswp-faq-answer-text\">No, under current regulations, the benefit of indexation is generally not available for mutual funds.<\/p><li style=\"list-style-type: none\"><h3 class=\"\">Is Indexation Benefit Available on Equity Mutual Funds?<\/h3><p class=\"saswp-faq-answer-text\">No, indexation does not apply when calculating capital gains on equity mutual funds.<\/p><li style=\"list-style-type: none\"><h3 class=\"\">How Was Indexation Calculated?<\/h3><p class=\"saswp-faq-answer-text\">Under the old rules, the original purchase price was multiplied by the CII of the sale year and divided by the CII of the purchase year.<\/p><li style=\"list-style-type: none\"><h3 class=\"\">What Is the Cost Inflation Index (CII)?<\/h3><p class=\"saswp-faq-answer-text\">The CII is an index issued by the government that was used under the old rules to adjust the purchase price of eligible investments in line with inflation.<\/p><\/ul><\/div>","protected":false},"excerpt":{"rendered":"<p>Investing in mutual funds can yield good returns after a few years, but inflation cannot be ignored. Previously, the benefit of indexation was available when calculating taxes on certain investments to account for the impact of inflation. If you want to understand what indexation in mutual funds is, it is essential to grasp not only [&hellip;]<\/p>\n","protected":false},"author":11,"featured_media":31083,"parent":0,"menu_order":0,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[19],"tags":[],"class_list":["post-31081","mutual-funds","type-mutual-funds","status-publish","format-standard","has-post-thumbnail","hentry","category-mutual-funds"],"acf":{"freelancer":"Harjyot"},"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v20.13 (Yoast SEO v21.2) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Indexation in Mutual Funds: Tax Rules in 2026<\/title>\n<meta name=\"description\" content=\"Understand indexation in mutual funds, the old CII formula, current tax rules, capital gains tax rates, and how mutual fund gains are calculated in 2026.\" \/>\n<meta name=\"robots\" content=\"noindex, follow, max-snippet:-1, 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