How much capital gains tax will you pay when withdrawing Rs 1 crore from your SIP? Your holding time and the kind of fund—equity or debt—will determine it. Tax-free at 15% for less than one year and up to Rs 1 lakh for more than one year, equity funds would be liable for 10% LTCG tax beyond that. The profit on loan funds will be included in your overall income and taxed according to the tax slab.
SIP Withdrawal Tax Investing in mutual funds has become a significant tool in modern times, and SIP (Systematic Investment Plan) is helping many people to make plenty of money. After making up to Rs 1 crore from SIP, half of India is unsure of the tax rate applied on withdrawal. India’s half-day will grasp this issue and confront it head-on. Half of India refers to those who have recently begun SIP-based long-term investments to generate large returns. He needs to understand how to pay capital gains tax on his planned withdrawal of Rs 1 crore from his SIP.
This is the way mutual fund profits are taxed.
Two factors determine the tax on the profit from mutual funds. First, are you more interested in debt or equity mutual funds? Secondly, what has your holding period been? Tell us exactly how much tax would be paid on the Rs 1 crore withdrawal from SIP and what plan you can follow to lower it.
Equation mutual fund taxation
Should 65% or more of the mutual fund investment be in equity,
Short-term capital gain (STCG) imposes a 15% tax on investments lasting one year or less. For instance, you will have to pay a tax of Rs 7.5 lakh (Rs 50 lakh × 15%) should you withdraw Rs 1 crore and find a profit of Rs 50 lakh.
Long-Term Capital Gain (LTCG): The first Rs 1 lakh profit is tax-free if the investment period is over one year. The profit left over then is taxed at 10%. If you profit Rs 50 lakh, Rs 1 lakh will be tax-free, and Rs 49 lakh will be taxed at 10%, i.e., Rs 4.9 lakh.
Taxes Applied to Debt Mutual Funds
Should fewer than 65% of the mutual fund’s total investments be in equity,
Short-Term Capital Gain (STCG): Should the investment term be three years or less, your profit will be included in your overall income and taxed according to your tax bracket. Should you find yourself in the 30% tax slab, you will be liable for 30% tax. For instance, the tax will be Rs 9 lakh (Rs 30 lakh x 30%) if your profit is Rs 30 lakh.
Long-Term Capital Gain (LTCG): Should the investment period be more than three years, borrowed funds will also be taxed from April 1, 2023; thus, the profit will be included in your overall income, and tax will be paid according to your tax slab.
Taxes on Balanced or Hybrid Funds
Should the fund have more than 65% equity, it will be taxed like an equity mutual fund. Conversely, if less than 65% equity exists, it will be taxed as a debt fund.
Save taxes as shown above.
You can implement some clever ideas to reduce your taxes. You must also apply the SWP (Systematic Withdrawal Plan). By doing so, withdraw progressively yearly instead of all at once to benefit from the LTCG exemption (tax-free up to Rs 1 lakh).
Second, you have to execute staggered withdrawal. If your gains are large, withdraw a bit over multiple years instead of all in one financial year to keep in a lower tax slab.
Third, make investments under the name of another family member or a Hindu Undivided Family (HUF). Invest in a family member whose taxable income is low and withdraw under a reduced tax rate.
