SIP Withdrawal Tax: How much capital gain tax will be levied on withdrawal of Rs 1 crore from SIP? It depends on your holding period and the type of fund (equity or debt). Equity funds are tax free at 15% for less than 1 year and up to Rs 1 lakh for more than 1 year, after that 10% LTCG tax will be levied. The profit on debt funds will be added to your total income and will be taxable as per the tax slab.
SIP Withdrawal Tax: In today’s time, investing in mutual funds has become a major means and people are earning a lot of money through SIP (Systematic Investment Plan). But, half of India does not know how much tax is levied on withdrawal after earning up to Rs 1 crore from SIP? The day half of India will understand this, it will beat its head. Half of India means those who have just started investing to earn a lot through SIP. When he plans to withdraw Rs 1 crore from SIP, it is very important for him to understand how capital gain tax will be applicable on this withdrawal?
This is how tax is levied on mutual fund earnings
The tax on the profit earned from mutual funds depends on two things. The first is whether you have invested in equity mutual funds or debt mutual funds? The second is what has been your holding period? Let us understand in detail how much tax will be levied on withdrawal of Rs 1 crore from SIP and what strategy can you adopt to reduce it?
Taxation on equity mutual funds
If 65% or more investment in mutual funds is in equity.
- Short-term capital gain (STCG): If the investment period is 1 year or less, then in this case you will be taxed at 15% on the profit. For example, if you withdrew Rs 1 crore and there is a profit of Rs 50 lakh in it, then you will have to pay a tax of Rs 7.5 lakh (Rs 50 lakh × 15%).
- Long-Term Capital Gain (LTCG): If the investment period is more than 1 year, the first Rs 1 lakh of profit is tax-free. After that, the remaining profit is taxed at 10%. For example, if you made a profit of Rs 50 lakh, then Rs 1 lakh will be tax-free and Rs 49 lakh will be taxed at 10% i.e. Rs 4.9 lakh.
Taxation on Debt Mutual Funds
If less than 65% of the investment in the mutual fund is in equity.
- Short-Term Capital Gain (STCG): If the investment period is 3 years or less, then in this case your profit will be added to your total income and taxed as per your tax slab. If you fall in the 30% tax slab, then you will have to pay 30% tax. For example if your profit is Rs 30 lakh, then the tax will be Rs 9 lakh (Rs 30 lakh × 30%).
- Long-Term Capital Gain (LTCG): If the investment period is more than 3 years, then from April 1, 2023, debt funds will also be taxed like short-term i.e. the profit will be added to your total income and tax will be levied as per your tax slab.
Taxation on Hybrid (Balanced) Funds
If the fund has more than 65% equity, then it will be taxed like an equity mutual fund. On the other hand, if there is less than 65% equity, then it will be taxed like a debt fund.
Save tax like this
If you want to reduce tax, then some smart strategies can be adopted. In this, you have to adopt SWP (Systematic Withdrawal Plan). Through this, instead of making a full withdrawal at once, withdraw gradually every year, so that you can take advantage of LTCG exemption (tax-free up to Rs 1 lakh).
Second, you have to do staggered withdrawal. If your gains are huge, withdraw a little over several years rather than withdrawing everything in one financial year so that you remain in a lower tax slab.
Third, invest in the name of a Hindu Undivided Family (HUF) or other family member. If you have a family member whose taxable income is low, invest in their name and withdraw at a lower tax rate.
