Investing in Mutual Funds, stock market? Here’s what you should know from Budget 2025

The Union Budget 2025-26 has proposed several tax changes affecting stock market and mutual fund investors, including higher TDS thresholds on dividend income and mutual fund payouts. The budget also proposes parity in capital gains tax rates for non-residents investing in Indian securities.

Key tax changes for investors

Earlier: TDS was deducted if dividend income exceeded ₹5,000.

Now: The threshold has been doubled to ₹10,000, benefiting retail investors who earn dividend income from stocks and mutual funds.

The exemption limit for TDS on income from mutual fund units has been raised from ₹5,000 to ₹10,000, reducing tax deductions for small investors.

To encourage Foreign Institutional Investors (FIIs) and Foreign Portfolio Investors (FPIs), the government has aligned the tax treatment of capital gains on securities for non-residents with that of resident investors.

Impact on investors

Retail investors in stocks and mutual funds will benefit from the higher TDS exemption limits, ensuring lower tax deductions at the source.

Non-resident investors will see greater tax clarity and a level playing field when investing in Indian capital markets.

No additional tax burden on stock market transactions keeps trading costs stable.

While the industry was expecting rationalisation of capital gains tax across asset classes, the budget did not introduce any major structural reforms in this regard.

Announcing major reforms in personal income tax, Sitharaman specified that the new no-tax income limit of ₹12 lakh under the new regime excludes special rate income such as capital gains.

"To tax payers upto ₹12 lakh of normal income (other than special rate income such as capital gains) tax rebate is being provided in addition to the benefit due to slab rate reduction in such a manner that there is no tax payable by them," she said in her Budget speech.

Later, at a press conference, Sitharaman said the personal income is always calculated without capital gains, and mentioning it specifically in her Budget speech was only for better clarity.

Finance secretary Tuhin Kanta Pandey explained: "Capital gains tax has always been different from normal income. If it were in normal income, capital gains for individuals in the highest tax bracket would be taxed at 30%. Would that be acceptable?"