How much capital gains tax is deducted when I redeem mutual fund units?

What does the law say?

Section 37A(1) of the Income Tax Ordinance, 2001 charges capital gains on disposal of securities at the rates in Division VII of Part I of the First Schedule, and section 37A(4) treats those gains as a separate block of income.

Division VII, as amended to 30 June 2026, contains a proviso written specifically for funds. It says a mutual fund, a collective investment scheme or a REIT scheme shall “charge and deduct” capital gains tax, on redemption of securities as prescribed, at these rates. The words “charge and” were inserted by the Finance Act, 2026.

Category	Stock funds	Other funds
Individual and association of persons	15%	15%
Company	15%	25%

Two more provisos follow:

• Where a stock fund’s dividend receipts are less than its capital gains, the rate of deduction is 15%.
• No capital gains tax is deducted “if the holding period of the security acquired on or before 30th day of June 2024 is more than six years”.

An Explanation limits these provisos to mutual funds, collective investment schemes and REIT schemes.

How does it work in practice?

The fund deducts, NCCPL checks. Section 100B(1) routes capital gains on listed securities through the Eighth Schedule. Rule 1(1A) of that Schedule says gains on units of open ended mutual funds are computed and determined under the Schedule and the tax is collected and deposited by NCCPL, while the redemption provisos of Division VII “shall continue to apply”. Rule 13N(3A) of the Income Tax Rules, 2002 (our copy is amended to 24 November 2023) has the asset management company determine, compute and collect the tax and deposit it with NCCPL within ten working days of the month end. Under rule 13N(3B), NCCPL verifies the figure and works out a net liability or refund for each investor. A small cumulative refund of up to Rs. 1,000 is carried forward month to month, and all refunds are paid at year end.

No brokerage adjustment. The 0.5% deduction for brokerage and fees in rule 13N(8) expressly does not apply to units of open ended mutual funds.

The fund’s own tax is separate. Section 100B(2) lists a mutual fund among the persons to whom section 100B(1) does not apply, and section 100B(3) says NCCPL computes the fund’s gains while the fund deposits its tax under other provisions. That concerns the fund as a taxpayer, not the tax deducted from you on redemption.

Worked example (illustrative figures)

Individual in a stock fund. Hina, a doctor in Karachi, bought 10,000 units of an equity fund on 1 October 2025 at Rs. 80 each and redeems all of them on 15 January 2027 at Rs. 95 each.

1. Redemption value: 10,000 x Rs. 95 = Rs. 950,000.
2. Cost: 10,000 x Rs. 80 = Rs. 800,000.
3. Gain: Rs. 950,000 - Rs. 800,000 = Rs. 150,000.
4. Tax at 15%: 15% x Rs. 150,000 = Rs. 22,500.
5. Amount paid out before any fund charges: Rs. 950,000 - Rs. 22,500 = Rs. 927,500.

Company in an income fund. A Sialkot sports goods company redeems units of a money market fund with a gain of Rs. 400,000. As a company in a fund other than a stock fund, it bears 25%: 25% x Rs. 400,000 = Rs. 100,000.

Long-held units. Rashid bought units on 1 March 2018 and redeems them on 1 September 2026, a holding period of about eight and a half years. The units were acquired before 30 June 2024 and held for more than six years, so the proviso says no capital gains tax is deducted.

What if I am not on the Active Taxpayers’ List?

The redemption table in Division VII does not set separate rates for persons outside the Active Taxpayers’ List. Rule 1 of the Tenth Schedule increases by one hundred percent any rate of deduction under the Ordinance for persons not on the list, and rule 13N(5A) of the Rules says rates are applied according to filer status. The text does not say in terms how the Tenth Schedule interacts with the mutual fund proviso, so this page does not state a non-filer rate for redemptions.

What if I bought the units after 30 June 2024?

The six-year exemption is tied to securities acquired on or before 30 June 2024. For later purchases the Division VII text gives no holding-period exemption for fund redemptions, so the 15% or 25% rate applies however long you hold.

Common mistakes

• Expecting the share-trading holding-period scale to apply. Fund redemptions have their own rate table in the Division VII proviso.
• Assuming the six-year rule covers all units. It covers only securities acquired on or before 30 June 2024.
• Expecting a 0.5% brokerage adjustment. Rule 13N(8) excludes mutual fund units.
• Confusing the fund’s exclusion from section 100B(1) with your own tax. Your redemption tax is still charged and deducted by the fund.

What to check in the official text

Read the provisos at the end of Division VII of Part I of the First Schedule and the Explanation that follows them, rule 1(1A) of the Eighth Schedule, and section 100B. Rule 1(1A) refers to the “second and third proviso” of Division VII, but Division VII has since been rewritten and its provisos renumbered, so read them in the official PDF. Rule 13N of the Income Tax Rules, 2002 in our copy is current only to 24 November 2023.