Budget 2024: How your SIPs will be taxed after capital gains rate changes

Jul 24, 2024 02:19 PM IST

Finance minister Nirmala Sitharaman announced an increase in tax on Short Term Capital Gains (STCG) and Long Term Capital Gains (LTCG) on equity-oriented funds in the Union Budget. Following this, a Systematic Investment Plan (SIP) of ₹50,000 for 60 months in equity funds will have a higher capital gains tax outgo of ₹94,095. This is currently at ₹77,456.

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The Union Budget hiked the STCG tax on equity mutual funds to 20 per cent from the current 15 per cent. LTCG tax will be 12.5 per cent compared to 10 per cent on equity funds, Nirmala Sitharaman announced, adding that there will be an increase in the exemption limit for LTCG tax to ₹1.25 lakh from ₹1 lakh in a financial year.

Here’s how your SIPs will be taxed after the Union Budget announcements:

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Each instalment of a SIP is treated as a separate investment for tax purposes. This means that if you invest ₹20,000 in an equity mutual fund through SIPs, your instalment will be considered separately in order to determine holding period and applicable tax rate.

Owing to the increase in LTCG from 10 per cent to 12.5 per cent, long-term investors may need to pay slightly higher taxes. But for small investors, there could be benefits owing to the exemption limit being raised to ₹1.25 lakh. The increase of STCG 20 per cent will impact short-term equity investors.

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As per the Budget, mutual funds investing more than 65 per cent of total proceeds in debt and money market instruments will be covered under Section 50AA which means that exchange-traded Funds (ETFs), Gold Mutual Funds and Gold ETFs will not be considered specified mutual funds.