Is there an easy way to check taxation liability for mutual fund Sips?
Every unit of mutual fund comes with a date of allocation of the net asset value for that particular unit. For example if you have 60 installments or SIPs, you would have 60 unique blocks in the folio. Calculation of tax must be done by checking the one year or 12 month limit for each such block. If you sell the entire holding in the mutual fund, you will need to determine the number of units that were long term ones and the number of short term units.
The taxation of SIP investments depends on the nature and tenure of the investment. The tax treatment of equities, debt, or a mix of both will vary. While equity Mutual Funds are the most tax-friendly ones, debt funds attract tax on both short and long-term returns. A Mutual Fund is treated like an equity scheme, from a tax point of view, only when more than 65% of the total portfolio is invested in equities.
In case of SIPs in equity Mutual Funds, the returns that you earn after one year of investment are taxed at 10% and are treated as long-term capital gains (LTCG). The profit booked before the completion of one year is treated as a short-term capital gain (STCG) and is taxed at 15%.
If a debt Mutual Fund SIP is held for more than three years, the returns are treated as a long-term capital gain. Profit earned in less than three years is treated as a short-term capital gain. While the LTCG for debt funds is taxed at 20% with indexation benefit, the STCG is taxed as per the respective Income Tax slab rate of the investor.
Each SIP instalment you invest will mature for LTCG on the completion of one and three years from the date of investment for equity and debt-oriented schemes respectively. The tenure is ascertained on the day of redemption.
The tax structure of a hybrid fund depends on whether it is equity-oriented (with more than 65% investment in equities) or debt-oriented (less than 65% invested in debt). Read the terms and conditions carefully to find out whether it qualifies as an equity or a debt scheme.
In case you have opted for the dividend option, such incomes don’t get taxed in the hands of the investors in equity funds. For debt funds, the taxation rate for dividends is 28.84%.
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