Capital gains can be long-term or short-term, and the tax implications for these differs accordingly and is also conditional on the type of ETF.

For Equity ETFs

The tax implication for Equity ETFs would be very similar to the capital gains made from individual stocks. Capital gains are considered short-term capital gains if the income arises from the sale of stocks that were on hold for less than a year. Likewise, capital gains are considered long-term capital gains when the holding period is greater than 1 year.

As per section 112A of the Income Tax Act, for all long-term capital gains, an amount of up to INR 1 lakh is tax-deductible, and a tax of 10% would be levied on any amount greater than 1 lakh without indexation benefits.

As per section 111A of the Income Tax Act, short-term capital gains are taxed at 15%, along with surcharge and other cesses as applicable.

For Gold, Debt and Other ETFs

Post the amendment in the Finance Bill on April 01, 2023, assessing tax liability for gold, debt and international ETFs based on their holding period has become irrelevant since they are now classified as short-term capital assets and, hence, taxed at the existing income tax slab rates.