Know Your Taxes on SIP In Mutual Funds

SIP in Mutual Funds are getting very popular and many of you have been doing it regularly for many years, and many from the last decade as well, but the question that many have is how much taxes they need to pay on their SIP investments.

Let’s Know Your Taxes on SIP

In Know Your Taxes on SIP we will discuss about TDS, STT, Stamp Duty, STCG & LTCG.

TDS

TDS (Tax Deducted at Source): NIL for Resident Indian Individuals; But, Applicable for NRIs.

Explanation: In SIP we are regularly investing in Mutual Funds and Mutual Funds are Capital Assets so any profit or gain arising from SIPs is taxed under Capital Gain Taxes hence there is no TDS or Tax Deducted at Source for Resident Indian Individuals. But for NRIs TDS is deductible based on STCG or LTCG mentioned below.

STT

STT (Securities Transaction Tax): Rs. 1 on every Rs.1 Lakh of Redemption.

Explanation: On every Rs.1 Lakh of Redemption (Withdrawl) of Your Equity Mutual Funds you have to pay Rs.1 as Securities Transaction Tax – This gets deducted by the AMC and deposited directly to the government. You don’t need to pay this tax separately as this is already deducted from your redemption amount. STT is applicable only on redemption from Equity Mutual Funds.

STAMP DUTY

Stamp Duty: Rs.5 on every Rs. 1 Lakh of Purchase

Explanation: Unlike STT, Stamp duty is paid on your Purchase (Investment) Amount. So on every Rs. 1 Lakh of Investment (be it through SIP or Lumpsum) the AMC will deduct Rs.5 as Stamp Duty and will allot units on the balance amount of Rs.99,995. This Rs.5 is directly deposited to the govt by AMC, you don’t need to deposit this separately.

STCG

STCG (Short-Term Capital Gain): 15% of Gain Value

Explanation: STCG also known as Short Term Capital Gain is to be paid 15% of Gain Value on your investments through SIP or Lump Sum in Equity Mutual Funds. In this case, Short Term is defined as where you have redeemed or withdrawn your investments before the completion of 1 year from the date of investment. This 15% Tax is to be paid only on Gain Value and not on the entire redemption amount. For NRIs 15% TDS is applicable in such cases.

LTCG

LTCG (Long-Term Capital Gain): 10% of Gain Value; Exempt up to Rs.1 Lakh

Explanation: LTCG also known as Long Term Capital Gain is to be paid 10% of Gain Value, over and above Rs.1 Lakh of Gains in a particular Financial Year (including gains from both Equity Mutual Funds, Equity Shares). Long Term is defined as where you have redeemed or withdrawn your investments after the completion of 1 year from the date of investment. This 10% Tax is to be paid only on Gains Above 1 Lakh and not on the entire redemption amount. For NRIs 10% TDS is applicable in such cases.

For example: You invested Rs.10,000 per month SIP in Equity Mutual Funds from Jan 2018 to Jan 2022 for 48 months then you Stopped SIP. Now in Jan 2024, you have withdrawn all investments worth 7 Lakhs. In this case, your cost is 4.80 Lakhs and Value is 7 Lakhs and your Gain Value is 2.20 Lakhs (All Units are Long Term because all investments are withdrawn after the completion of 1 year, Total Gain is 2.20 Lakhs and Gains up to Rs. 1 Lakh are exempt so Net Taxable Gain is 1.20 Lakhs (2.20 Lakh – 1 Lakh). So at 10% Tax on 1.20 Lakhs, your tax liability will be 12,000 only.

Note: SIPs are generally suggested in equity mutual funds to take the benefit of the rupee cost average in the long term therefore above Taxes are discussed only for Equity Mutual Funds.

In case you have any queries and want to discuss your Mutual Fund Investments with me then click here to schedule a one-to-one meeting with me.

Disclaimer: The above Taxations are as of January 2024. Future taxation may or may not change. However, the author has taken the best care in compiling the above data for education purposes only and we suggest to please consult your tax professional to ascertain your tax liabilities, The author or publisher of this website is not responsible for any loss or tax liability incurred by the reader. Know Your Taxes on SIP in Equity Mutual Funds.

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