Taxability must be assessed before starting investment in SIP so that your returns can be maximized. The dividend paid by mutual funds is added to the total income and tax is calculated on the basis of income tax slab.
SIP or Systematic Investment Plan is one of the most searched investment term on the internet. Many investors in the country want to earn huge profits by investing money in Mutual Funds. But this information is not available to everyone. That is why today we are giving you information about Mutual Fund SIP. Along with this, we are telling 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) , then you also get exemption under 80C. But let us tell you that under this all SIPs are not exempted.
However, before starting investment in this, taxability must be assessed so that your returns can be maximized. The amount of tax to be paid on investment in SIP depends on whether the capital is invested in equity funds or debt funds or both. The dividend paid by mutual funds is added to the total income and tax is calculated on the basis of income tax slab.
How long does it take to start SIP?
In all open-ended ELSS schemes, investors get an opportunity to invest through SIP. Some fund houses ask to choose a date of the month for SIP. For this, investors have to fill 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 schemes. In this, profits are not redeemed for more than 12 months. In this case it will be considered long term. If you have redeemed the profit within 12 months, then it will be included in short term.
Apart from equity oriented schemes, all other schemes fall in the second category. These include debt, liquid, short term debt, income funds, government securities, fixed maturity plans. Gold ETF, Gold Savings Fund, International Fund are also included in this. Investment in this category becomes long term if it is 36 months old and if sold before 36 months it will be considered as short term.
When you invest through SIP or STP, every SIP/STP is considered as a new investment. Here we see the date of unit allotment for taxation purposes. The lock in period is done on the basis of 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 not be long 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 unit which was bought first, will be redeemed first. The units are kept in different demat accounts. In this case, the holding period will be on the basis of 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 Tax
STCG i.e. short term capital gain tax is also calculated in two different categories. Equity oriented schemes are taxed at 15% and profits from other category funds are taxed. The profits from these funds are considered as your regular income. In this case, tax will be levied on them according to your tax slab.
LTCG tax
Long term capital gain up to 1 lakh on equity oriented scheme is tax free. After 1 lakh it is taxed at 10%. Tax exemption is available on this 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 section 80C, 80CCD, 80TTB. Tax exemption cannot be claimed in these sections as against capital gains. Can be taken only on the basis of STCG of the second category of funds. Non-resident has to pay full 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-resident will not get this benefit.
What is indexation
Indexation reduces the tax liability significantly. Sometimes the tax gets waived off completely. The amount invested is increased in proportion to inflation. By showing more amount of investment, the profit comes less and then the tax liability also comes down.
