How are ETFs Taxed in India - Taxation of Income from ETFs

Buy Health insurance in Bangalore starting at Rs. 15/day*
Who Would You Like To Insure?
service additional service
7000+ Cashless Hospitals
service additional service
Covid-19 Cover
service additional service
94.43% Claim Settlement Ratio
service additional service
No Pre-Policy Medical Checkup

How are ETFs Taxed in India - Taxation of Income from ETFs

Exchange-Traded Funds (ETFs) have become a cornerstone of modern investment portfolios, offering diversification, liquidity, and often lower costs compared to traditional mutual funds.

In India, the popularity of the ETF has surged in recent years as investors seek efficient and transparent ways to participate in the financial markets.

However, understanding the ETF taxation implications is crucial for maximising returns and navigating potential pitfalls.

Whether you're a seasoned investor or a new entrant in the market, exploring ETF taxation in India can significantly impact your investment strategy and overall returns.

Continue reading to learn more about ETF investment in India and how ETTs are taxed in India.

What are ETF Investments in India?

An exchange-traded fund (ETF) is a marketable product that tracks an index (like BSE Sensex or the CNX Nifty), a commodity (like gold or silver) bonds, or a basket of assets.

When you buy an ETF, you are purchasing shares/units in a portfolio that replicates the yield and return of its original index. ETFs vary from index funds in a way that the latter do not attempt to outperform their respective index, but rather replicate its performance.

Different Ways to Make Money with ETFs

There are two ways for investors to make money by investing in ETFs:

Through Dividends: Many ETFs hold a basket of stocks that pay dividends to their shareholders. By investing in these dividend-focused ETFs, investors can earn income in the form of regular dividend payments. These dividends are typically distributed periodically, such as quarterly or annually, and can provide investors with a steady stream of income.

Dividend ETFs often focus on companies with a history of stable earnings and consistent dividend payouts, making them attractive for income-oriented investors seeking to supplement their investment returns.

Through Capital Gains: Investors can also earn money through capital gains by investing in ETFs. Capital gains occur when the price of the ETF increases, allowing investors to sell their shares at a higher price than what they initially paid.

Investors can realise capital gains by selling their ETF shares at a profit, either partially or entirely, depending on their investment goals and risk tolerance.

Taxes on Different Incomes From ETFs

Tax Structure for Dividend Income: Earlier, dividends were subject to DDT (Dividend Distribution Tax) in the hands of the company issuing the dividend. However, from FY 2020-21, dividend income received from ETFs is added to the investor's annual income and taxed according to the applicable slab rates.

Tax Structure for Capital Gains: As mentioned earlier, the ETF capital gains tax arises when the ETF units are sold or redeemed. The tax structure differs depending on the type of ETF and the duration for which it is held.

Taxation on Equity ETFs

  • These exchange-traded funds primarily invest in stocks and related financial instruments. The tax structure for equity ETFs is similar to that of equity stocks.

  • Both long-term and short-term capital gains tax are applicable depending on the duration of holding the ETF. Hence, if gains are earned from selling equities that were kept for less than a year, they are deemed short-term capital gains. Similarly, gains are regarded as long-term gains if they are held for more than one year.

  • According to section 112A of the Income Tax Act, all long-term gains up to ₹1 lakh are tax deductible, and any sum over 1 lakh that is not subject to indexation benefits would be subject to 10% tax.

  • The Income Tax Act's section 111A states that short-term capital gains are subject to a 15% tax rate, surcharge, and other cesses as necessary.

Taxation on Gold, International, Debt, and Other ETFs

The taxation of gold, debt, international and other ETFs is comparable. However, in this instance, both the short-term and long-term capital gains are defined.

If the gains from the sale of these ETFs (held for less than 3 years), it is referred to as short-term gains. Similarly, gains on capital are regarded as long-term gains if they are kept for more than 3 years.

  • In addition to indexation benefits, the tax applicable is 20% for long-term capital gains from gold, debt, or foreign ETFs.

  • The amount of any short-term capital gains will be included in the investor's yearly income and subject to income tax as per the slab rate.


In conclusion, understanding the taxation of Exchange Traded Funds in India is crucial. Investors need to be aware of the taxation rules applicable to ETFs, which primarily revolve around capital gains and dividends. Long-term capital gains tax for equity ETFs is applicable on gains realised after holding ETF units for more than one year and is subject to indexation benefits. On the other hand, short-term capital gains tax is levied on profits from the sale of ETF units held for one year or less, taxed at the individual's applicable income tax slab rate.

About Tata AIG Health Insurance Plan

Tata AIG Health Insurance is a prominent player in the Indian insurance market. It offers comprehensive health insurance plans tailored to the diverse needs of individuals and families. With a commitment to providing financial security against unforeseen medical expenses, Tata AIG medical insurance plans have garnered trust and recognition among policyholders.

One of the key benefits of Tata AIG Health Insurance is the coverage it offers for pre-existing diseases. A pre-existing disease coverage refers to any health condition that a person already has at the time of purchasing the insurance policy. These conditions could range from diabetes and hypertension to asthma or any other chronic ailment.

Many medical insurance plans typically exclude coverage for pre-existing diseases for a certain waiting period after policy inception. However, Tata AIG Health Insurance often offers coverage for pre-existing diseases after a specified waiting period, making it an attractive option for individuals seeking comprehensive coverage.

Disclaimer / TnC

Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.

Related Articles

What is the Gold ETF Taxation in India?

What is the Gold ETF Taxation in India?


Gold ETF Taxation in India is taxed similarly to debt or international ETFs. They fall under the capital gains tax regime, where gains from holding for less than three years are treated as short-term capital gains and taxed at the investor's income tax rate.