How much tax is applicable on SIP? Is SIP tax free?

-> Today you will know how much tax is levied on SIP, is SIP tax free? How much tax is to be paid on doing SIP in which mutual fund and when is it levied, how much tax will I have to pay on SIP withdrawal?

-> Apart from this, how is tax calculated on SIP returns? How much tax benefit is available in SIPs? Do we get a tax exemption on investing in SIPs? If yes, then how much? Today, we will understand all the taxes levied on these SIPs with examples.

How much tax is levied on SIP?

-> SIP in equity mutual funds attracts 15% short term capital gain (STCG) tax while 10% long term capital gain (LTCG) tax. Apart from this, 4% cess charge is also levied on the profit. If the return on your investment is less than 1 lakh, then SIP will be tax free for you.

-> Meaning if you earn a return of more than 1 lakh rupees on your SIP investment, then only you will have to pay tax. That is, tax exemption is available on SIP return up to 1 lakh.

-> But let us tell you that before knowing how much tax is levied on SIP, it is very important for you to understand the difference between STCG and LTCG.

• STCG means Short Term Capital Gain. This is the return you earn on your SIP in less than 1 year.
• LTCG means Long Term Capital Gain. This is the return you earn on your SIP in more than 1 year.

->This means when you withdraw money from SIP before 1 year then you have to pay Short Term Capital Gain Tax which is 15%. And when you withdraw funds from SIP anytime after 1 year then you have to pay Long Term Capital Gain Tax of 10%.

Tax rates are different on SIP in equity and debt

-> One more thing to know is that the 15% and 10% tax mentioned above is only for equity schemes. This means that when you do SIP in funds other than equity mutual funds, the tax rate will be different.

-> Let us tell you that most investors do SIP only in equity schemes such as; Equity mutual fund, index fund or any other ELSS (Equity Linked Saving Scheme).

-> 70-80% of the portfolio of all these equity schemes is invested in equity i.e. shares (shares of companies listed in the stock market). Sometimes it can be 100% also.

How much tax is levied on doing SIP in which scheme?

-> The table below shows how much tax is levied on doing SIP in which scheme–

Schemes	Monthly Investment	Short Term Gain	Long Term Gain
Equity Mutual Fund	Rs. 10,000	15%	10%
Debt Fund (Short-term)	Rs. 8,000	15%	20%
Debt Fund (Long-term)	Rs. 12,000	30%	10%
Liquid Fund	Rs. 5,000	20%	25%
Income Fund	Rs. 7,000	35%	15%
Government Securities Fund	Rs. 9,000	25%	8%
Fixed Maturity Plan	Rs. 11,000	10%	12%
Gold ETF	Rs. 6,000	22%	15%
Gold Savings Fund	Rs. 8,500	18%	13%
International Fund	Rs. 10,500	12%	9%

For how long is tax applicable on SIP?

-> In equity funds, short term capital gain tax is applicable for a period of less than 12 months on SIP withdrawal, whereas long term capital gain tax is applicable on redeeming SIP after 12 months (1 year).

-> Whereas in debt funds, STCG tax is applicable on withdrawal of SIP money before 36 months and LTCG tax is applicable on withdrawal of SIP money before 36 months.

How much tax is levied on SIP in how many years?

-> The table given below tells how much tax is levied in how many years on investing Rs 10,000 per month in SIP –

Investment Period	Monthly Investment	Tax on Maturity Amount
3 साल	10,000	2,344
5 साल	10,000	4,981
10 साल	10,000	19,038
15 साल	10,000	43,951
20 साल	10,000	95,490
30 साल	10,000	392,035

When is tax levied on SIP?

-> SIP returns are taxed under the following conditions:

(1) Tax on Dividend

-> If you have invested in a mutual fund scheme that pays dividends, then the dividend paid to you on your investment is taxed at 11.648% (including surcharge and cess) which is subject to Dividend Distribution Tax (DDT).

(2) Tax on Redemption

-> When you redeem or sell your mutual fund units, capital gains tax is levied on the profit made on your investment. The rate of this tax depends on the type of mutual fund scheme and the holding period.

(3) Tax on Systematic Withdrawal Plan (SWP)

-> SWP means Systematic Withdrawal Plan, which is called systematic withdrawal plan in Hindi. If you choose a SWP to withdraw a fixed amount from your mutual fund investment at regular intervals, the gains made on your investment will be subject to the same tax rules that are made for SIP withdrawal.

-> I would advise you to consult a tax expert or financial advisor to understand the tax implications of SIP investments as it may vary depending on your specific situation and tax laws.

Is SIP tax free?

-> Is SIP Tax Free: SIP is not an investment vehicle in itself but it is a way through which you can invest in mutual funds. Hence, SIP itself is not tax free.

-> After investing in mutual funds, you have to pay capital gains tax, which is regulated under the Income Tax Act, of 1961.

-> As I mentioned above, capital gains tax on SIP is calculated differently depending on the type of your mutual fund scheme, holding period and gains.

-> But, there are some mutual fund schemes that are eligible for tax saving, such as Equity Linked Savings Scheme (ELSS).

-> ELSS is a tax-saving mutual fund scheme for which you can get tax benefits under Section 80C. If you invest under ELSS, you can get a tax benefit of Rs 1.5 lakh in SIP.

->Therefore, SIP itself is not tax-free, but you can get tax benefits by investing in tax-saving mutual fund schemes like ELSS.

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