Are returns from SIP taxable?

Investing your money can help it grow in value and beat inflation. But most of your hard-earned profits can also go into tax and reduce earnings. This is why it is important to determine the taxability of each investment before putting in any of your hard-earned money. Mutual funds can be a suitable investment option for most people but are the returns from a SIP taxable? Read on to find out.

How can tax-saving SIP options help you?

Online mutual fund investments can get you a tax exemption of up to Rs under Section 80C of the Income Tax Act, 1961. 1.5 lakhs. So, you can use this option to reduce your tax liability in a financial year.

How are you taxed when you invest in mutual funds?

When you invest in a mutual fund, your returns can be classified as Long-Term Capital Gains (LTCG) or Short-Term Capital Gains (STCG). The criteria to ascertain among them can differ based on the duration and type of fund. For instance,

  • Equity funds held for

< 12 months are categorized as STCG

> 12 months are classified as LTCG

  • Debt funds held for

< 36 months are classified as STCG

> 36 months are classified as LTCG

Taxation of STCG on debt mutual funds

It is added to your annual gross income and taxed according to the applicable income tax slab you fall under.

Taxation of LTCG on debt mutual funds

After indexation, it is taxed at a flat rate of 20% (plus cess and surcharge).

Taxation of STCG on equity mutual funds

It is taxed at a flat rate of 15% (plus cess and surcharge).

Taxation of LTCG on equity mutual funds

LTCG on equity funds up to a limit of Rs. 1 lakh in a year are tax-exempt. Any long-term capital gains beyond this are taxed at a flat rate of 10% (plus cess and surcharge).

Taxation of capital gains on a SIP

  • LTCG through SIPs is not taxed if they are below the Rs. 1 lakh limit. However, anything above this limit will be taxed per the existing IT slabs.
  • STCG, through SIPs, is taxed at a flat rate of 15%, irrespective of the tax slab.

Mutual funds can be a great way to build your savings corpus. However, you must know how they are taxed to make better decisions. If you want to start investing, check out the Moneyfy app to simplify investing. You should also invest in a good financial planner or tax consultant for the right tax-saving SIPs.