This paper systematically examines the taxation of mutual funds applicable for Assessment Year 2025-26, focusing on different categories of funds namely Equity-oriented schemes, Debt-oriented schemes, Hybrid schemes, Solution-oriented schemes and Others includes passively managed Index funds, Fund of Funds (FoFs), and Exchange Traded Funds (ETFs). It is perceived by most of the population in India, investment in mutual funds is the safer and getting the expected returns. Presently 3 to 5% of the total population in India has invested in various mutual fund schemes. It is always perceived by most of the households that investment in mutual funds is always considered low risk investment as compared to direct investment in stock market. Taxation in mutual funds is dependent upon the date of purchase and sale/ redemption of the units held by the investor. Under the Income Tax Act, depending upon the holding period of the units they are classified as short capital and long-term capital and thereby they are taxed accordingly. This paper also discusses on the taxation on dividend income.