Change in Capital Gains Impact on SIP :The Union Budget has come as a double blow for mutual fund investors. Finance Minister Nirmala Sitharaman has announced changes in capital gains tax. The budget has made changes in short term capital gains (STCG) and long term capital gains (LTCG) on equity-oriented funds. The tax on long term capital gains has increased from 10% to 12.5%, while the tax on short term capital gains has now increased from 15% to 20%. However, long term capital gains will come under the purview of tax only if you have a profit of more than Rs 1.25 lakh in a financial year. Earlier it was Rs 1 lakh.
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Higher taxes on income
Currently, after the change in capital gains, you will have to pay more tax than before on the earnings from equity schemes. Mutual funds are becoming the most preferred way for Indian investors to invest in equity markets. In April 2024, for the first time, monthly investment through Systematic Investment Plans (SIPs) crossed Rs 20,000 crore. At the same time, the number of investors in it is increasing year after year. In such a situation, it is important for SIP investors to understand the impact of the increase in tax on their profits. In the budget, debt mutual funds have continued to be taxed as per the normal income tax rate.
Capital Gains Tax: Tax rules on earnings from the stock market have changed, now how much LTCG will have to be paid, STCG and STT also announced in the budget
How is tax levied on SIP
AK Nigam, Director of BPN Fincap, says that if you invest in mutual funds through SIP on a monthly basis, then your monthly installment is considered as a separate investment. You can understand it like this that you have planned a SIP for 5 years. You invest Rs 5000 every month in SIP. In such a situation, every installment is considered different for the holding period and how much tax will be levied on it.
For example, if you have done a SIP for 5 years or 60 months, then the tax that will be levied on the first to 48th installment on redemption will not be levied on the 50th or 51st or the installment thereafter. Any installment that is less than 12 months will come under short term capital gains. Tax will have to be paid on this under STCG. Whereas whatever is being deposited before 12 months will be LTCG.
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How to avoid tax losses
AK Nigam says that due to increase in LTCG and STCG, you will have to pay some increased tax. But if you are a smart mutual fund investor, you can avoid the loss. He says that if you have chosen SIP for a long period, then after 4 years or 5 years, you can choose the option of SWP i.e. Systematic Withdrawal Plan for withdrawal. In SWP, withdrawal is first of those units which are bought earlier. Therefore, after 4 or 5 years, every month’s withdrawal will come under LTCG. In this also, it is better that you keep the option of withdrawal of Rs 10,000 on monthly basis, which will be Rs 1,20,000 in a year. Being less than Rs 1,25,000, it will not be taxed under LTCG.
Let us tell you that if the holding of equity investment is less than 1 year, then STCG will be levied at the rate of 20 percent on the income earned from it. Whereas if the holding is more than 12 months, it will come under LTCG, on which 12.5 percent tax will be levied on the income above Rs 1,25,000.
