SIP and its Tax Implication

SIP and its Tax Implication

Are you also one of those who has invested in SIP’s or willing to invest in them or wanted to know the tax implication of it? then this article is only for you.

SIP i.e. Systematic Investment Plan is the most convenient yet affordable method to spend in Mutual Funds. You can invest in SIP’s on periodically basis, the frequency of it could be either on weekly, monthly, quarterly, bi-annually or annually basis.

What is SIP?

SIP and its Tax Implication: Taxofile

A SIP is a systematic approach towards investing and involves allocating a small pre-determined amount of money for investment in the market at regular intervals (usually most of the investors prefer to invest on monthly basis).

The SIP route is the preferred way of investing in the stocks and Mutual Funds because it allows you to participate in the market with minimum risk factor.

Is there any deduction available for SIP scheme?

The investor can claim a deduction up to Rs.1,50,000 under section 80C for the investment made in SIP. But the deduction is available only if the SIP is of an ELSS mutual fund i.e., Equity Linked Savings Scheme Mutual Fund.

Also, if the investor has already made other investments eligible for deduction under section 80C up to Rs.1,50,000/-, then there will be no extra benefit from investment in SIP of an ELSS fund. Because the maximum limit to claim deduction under section 80C is Rs. 1,50,000.

Taxation of capital gains from SIPs

The taxation of capital gain depends on the type of mutual fund and the holding period. If a SIP of an equity fund is held for less than 12 months, there will be short-term capital gain taxable at 15%. But if a SIP of an equity fund is held for 12 or more months, then there will be long term capital gain taxable at 10% in excess of Rs.1,00,000/-.

Taxation of capital gains from debt fund SIPs

If the SIP of a debt fund is held for less than 36 months then it will be considered as short-term capital gain which is taxable at the slab rates as applicable to the taxpayer. But if a SIP of a debt fund is held for 36 months or more, then there will be a long-term capital gain taxable at 20% after indexation cost.

There are also few hybrid funds which are taxable based on the equity exposure of the fund. If the equity exposure of the fund exceeds 65%, then it is taxable like an equity fund otherwise the tax rates applicable to the debt fund will be applicable as given above.


With the help of the SIPs, taxpayers can invest with smaller amount on periodically basis instead of the lump sum amount at once, which install a sense of financial discipline. The SIP scheme shows that a large amount of money is not required to start an investing.

A taxpayer should keep in mind that the holding SIPs on long term basis, is more tax-efficient. Taxpayers must invest in SIPs as per their objectives and risk capability.

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