Taxability of Exchange Traded Fund (ETF) under Income Tax Act, 1961

What is an Exchange Traded Fund (ETF)

An exchange traded fund (ETF) is a type of security that involves a collection of securities such as stocks that often tracks an underlying index, or ETF is a type of Mutual Funds that tracks an index (NIFTY/SENSEX), or a commodity (Gold) or a basket of assets like an index fund. However unlike regular Mutual Funds, ETF are listed on exchange & trades like a stock, thus experiencing price changes throughout the day as it is bought & sold.

Tax Implication of Exchange Traded Fund (ETF)

Taxability of any FTF shall applied as any others capital gain shares/equity share under income tax act 1961, and income tax rate is depend on period of holding of ETF – 

(a)   Short Term Capital Gain on EFT - Short-term capital gains result from selling capital assets owned for one year or less (12 Months or Less).

(b)   Long Term Capital Gain on EFT - Long-term capital gains result from selling capital assets owned for more than one year (12 Months or More).

Income Tax Treatment of Capital Gain on ETF 

Parameter	Gold ETF	Index ETF	International ETF	Industrial Sector Specific ETF
Short Term Capital Gains Tax	As per the Income Tax Slab	15%	As per the Income Tax Slab	15%
Long Term Capital Gains Tax	10% without indexation or 20% with indexation	Nil	10% without indexation or 20% with indexation	Nil
Securities Transaction Tax (STT)	Nil	0.125% *	Nil	0.125% *