ETF Tax in India

Exchange Trading Funds, ETFs, are passive or active investment tools that track the performance an index. Fund houses are financial pools that pool together the resources of many investors to buy tradable monetary asset. They are not trying to outperform the index, but rather aim to match its composition.

ETF prices fluctuate daily. Their value is determined by the net asset value of their component. Their popularity has been due to their higher liquidity and lower fees.

What are ETFs?

ETFs share the same features as mutual funds and shares. These funds are traded on stock exchanges and can be bought or sold according to demand and supply factors.

Their price is determined by the net asset value and underlying assets, as we have discussed. The overall performance of an ETF will determine the final dividend the shareholders receive.

These are the types ETFs according to their management -

Actively managed ETFs

After carefully reviewing the current stock exchange conditions, portfolio managers manage them. This type of ETF targets companies with high potential.

Passively Managed ETFs

ETFs passively managed mirror the trending indexes. They only invest in companies that are at the top of the charts.

Types and Prices of ETFs in India

Equity TF

This category includes companies that invest in shares and other forms of equity.


Trading in physical gold assets is part of the Gold s ETF s. You can have gold on paper by investing in these companies without worrying about asset protection.


These companies deal in instruments that offer fixed returns like government bonds.


Investing in currencies that are likely perform well in the future is a good way to attract investors. Exchange rate fluctuations are the key to these gains. They are also affected by the political and economic situation of countries and interrelationships.

What tax is ETFs subject to?

ETF taxdifferences on equity-oriented and not-equity ETFs. They are subject to Securities Transaction Tax.

Equity oriented funds

Index ETFs are equity-oriented schemes. Capital gains on them less than 365 calendar days are subject to 15% plus 4 percent CESS. Units held for longer than one year are subject to 10 percent tax, with no indexation benefits. ETF tax on long-term capital gains above Rs. 1 lakh is null

Other equity-oriented funds

Non-equity ETFs can be used to invest in gold and international ETFs. ETF tax is applied to short-term gains of less than 36 months. This rate is the income tax slab rate. Long term capital gains exceeding one year are subject to 20% tax after indexation.

What benefits are there for ETFs?

ETFs have many advantages.


ETFs offer great diversification and can track more stocks. One ETF may give you exposure to a variety of market segments and a group of equities from different sectors.

Trades like a Stock

ETFs offer diversification and liquidity, but they do not have the same benefits as equities. This is illustrated by the following:

  • ETFs are also available for short sale. You can also purchase them at a margin.
  • Prices are updated every hour of the day.
  • They allow you to trade futures and options, just like stocks.

ETF trading is similar to stock trading. You can track the approximate daily price changes through the ticker symbol. Stock websites often offer mobile apps that allow investors to see price fluctuations in real time.


ETFs that are passively managed attract a lower capital gains tax, and thus are more tax efficient. ETFs can also be used to buy and sell shares. This is known as in-kind redemption. They are exempt from tax.

What to Consider Before Investing in ETFs

  • Before investing in an ETF, it is important to understand the investment horizon. Your tax liability will be reduced if you invest in the ETF over the long term.
  • A clear investment strategy is essential for selecting the right ETF. You should assess whether your portfolio is made up of a broad market index or a particular sector.


Many investors use ETFs to gain exposure in multiple sectors. They can provide huge returns if used properly.

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