Are mutual fund returns tax free?
No, mutual fund returns are not tax free. The tax payable depends upon which type of mutual fund it is.
For equity funds, the holding period is 12 months. If you sell before 12 months, a short-term capital gains (STCG) tax of 15% is applicable. If you sell after 12 months, a long-term capital gains (LTCG) tax of 10% above Rs 1 Lakh is applicable.
For debt funds, the holding period is 36 months. If you sell before 36 months, you need to pay a STCG tax as per your income tax slab. If you sell after 36 months, you have to pay LTCG tax @20% with indexation.
Read everything about taxation in mutual funds here.