Mumbai: This year the Budget session will kickstart on 28th January and Finance Minister Nirmala Sitharaman will present the country’s budget will come
on the 1st of February. Many speculations are being made regarding the budget. It is believed that the government can announce something big in the budget 2026-27.
Mutual Fund SIP investment has been growing in the recent years. Do you know that SIPs are taxed? Since capital gains tax is levied on shareholdings, the same tax is applicable here as well. Let’s understand this in detail.
Millions of people who invest in mutual funds consider SIP to be a safe and long-term option. But when it comes to tax, then the answer is yes, tax is levied on SIPs, but it is very important to understand its method and timing. First of all, it is important to know that SIP is not a separate investment, but a method of regular investment in mutual funds. Therefore, the tax rules apply to the type of fund and the holding period. The important thing is that no tax is levied while doing SIP. Tax is levied when you sell your units, that is, at the time of redemption, when you sell your unit, you have to pay tax on it.
Tax on SIP of Equity Mutual Funds
If the SIP is done in Equity or Equity-Oriented Mutual Fund, then the tax should be understood in two parts. If every SIP instalment sold after holding more than 1 year, it is considered as a long-term capital gain. Under the current rules, LTCG up to Rs 1.25 lakh in a financial year is tax-free. Profits above this will be taxed at 12.5%. This tax is levied at a flat rate and does not provide the benefit of indexation.
If SIP units are sold before 1 year, it is considered a short-term capital gain and is taxed at 20%. It is also worth noting that every installment of SIP is considered a separate purchase. That is to say, the holding period of each instalment is counted separately and the tax calculation is also done on the same basis.
Tax on Debt Mutual Fund SIP
The tax rules in Debt Mutual Fund SIP are different. Debt funds purchased after April 2023 no longer get the separate benefit of LTCG. No matter how long the investment is kept, the entire profit earned is added to your income and tax has to be paid as per the income tax slab. SIP is not a tax-free investment, but with the right planning, the tax burden can be reduced. Equity SIP offers LTCG tax-free benefit of up to Rs 1.25 lakh if continued for a longer period, which makes it tax-advantageous. Understanding tax rules before investing should be an important part of your return strategy.
(Disclaimer: This article is only meant to provide information. News9 does not recommend buying or selling shares or subscriptions of any IPO, Mutual Funds, gold, silver and crypto assets.)
