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How much Tax is deducted from SIP: See Full Details

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SIP, or Systematic Investment Plan, is one of the most searched investment terms on the internet. Many investors in the country want to earn huge profits by investing money in Mutual Funds.

But this information is only available to some. That is why today we are giving you information about Mutual Fund SIP.

Along with this, we are talking about their scheme of mutual funds, in which tax is also saved by investing money.

If you have invested in mutual funds through SIP (Systematic Investment Plan), you get an exemption under 80C. But let us tell you that all SIPs are not exempted under this.

However, before starting an investment in this, taxability must be assessed to maximize your returns.

The amount of tax to be paid on investment in SIP depends on whether the capital is invested in equity funds, debt funds, or both.

The dividend paid by mutual funds is added to the total income, and tax is calculated based on the income tax slab.

How long does it take to start SIP?

In all open-ended ELSS schemes, investors can invest through SIP. Some fund houses ask to choose a date of the month for SIP.

For this, investors must fill out an application form giving SIP and ECS mandates. Banks usually take 21 to 30 days to register this ECS mandate. You can also start SIP online.

Tax math on mutual funds

Divide the mutual fund into two parts according to taxation. Equity-oriented funds come in the first part, and all other mutual funds come in the second.

If you are investing 65% in a domestic company listed on the stock market, then such schemes are equity-oriented.

In this, profits are not redeemed for more than 12 months. In this case, it will be considered long-term. If you have saved the profit within 12 months, it will be included in the short term.

Apart from equity-oriented schemes, all other techniques fall in the second category.

Debt, liquid, short-term debt, income funds, government securities, and fixed are also included in this.

Long-term maturity plans come if the investment is 36 months old in this category.

Gold ETFs are held in Gold Savings Funds, International Fund, if sold before 36 months, will be considered short-term.

Every SIP/STP is considered a new investment. Every SIP/STP is regarded as a new investment when you invest in SIP or STP; every SIP/STP is viewed as a new investment.

Here we see the date of unit allotment for taxation purposes. The lock-in period is done based on the unit allotment date only.

Suppose you started SIP investment a year back. Your first SIP will be long-term after one year. Subsequent SIPs will be short-term with the first SIP.

The profit of SWP, i.e., Systematic Withdrawal Plan, is determined by the first in, first out (FIFO) method. In such a situation, the bought unit will be redeemed first.

The units are kept in different demat accounts. In this case, the holding period will be based on each demat account entry.

Tax on dividend

This amount is tax-free for the recipient of dividends. Because the mutual fund house already pays DDT (Dividend Distribution Tax).


STCG, i.e., short-term capital gain tax, is also calculated in two categories. Equity-oriented schemes are taxed at 15%, and profits from other category funds are taxed.

The earnings from these funds are considered your regular income. In this case, the tax will be levied on them according to your tax slab.

LTCG tax

Long-term capital gain of up to 1 lakh on an equity-oriented scheme is tax-free. After 1 lakh, it is taxed at 10%. Tax exemption is available only when STT (Securities Transaction Tax) is paid.

For Equity Oriented Funds, the NAV (Net Asset Value) as on January 31, 2018, will be considered.

Indexation benefit is not available on LTCG of equity scheme. 20% tax will have to be paid on the second category of funds.

Capital gain under 80C

Tax exemption is available under sections 80C, 80CCD, and 80TTB. Tax exemption cannot be claimed in these sections as against capital gains.

It can be taken only based on the STCG of the second category of funds. The non-resident has to pay the total tax on LTCG-STCG.

Rebate will be available in section 87A

12500 tax exemption is available under section 87A. Rebate can be taken against capital gains.

Only equity-oriented scheme does not get this benefit on LTCG, and non-residents will not get this benefit.

What is indexation

Indexation reduces tax liability significantly. Sometimes the tax gets waived completely.

The amount invested is increased in proportion to inflation. By showing more investment, the profit comes less, and then the tax liability also comes down.

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