Taxation on Lumpsum Investments
Say you invested ₹1,00,000 in an equity mutual fund as a lump sum. With a 12% annual growth rate, in 10 years, this could grow to about ₹3,10,000.
Now, for the tax part 👇🏽
Long-term capital gains, i.e., if the money is invested for over 1 year, is taxed at 10%. Now, suppose you withdraw the entire ₹3,10,000. From that, minus ₹1,00,000 (which was your initial investment). And minus another ₹1 lakh (because you get a 1L LTCG exemption each year). That leaves your taxable gain at ₹1,10,000. You'll pay a 10% tax on ₹1,10,000, which amounts to ₹11,000.
Now for SIPs 👇🏽
Imagine you're investing ₹10,000 every month. In a year, that's ₹1,20,000. Here’s a key point about SIPs – each monthly installment is considered a separate investment for taxation. For simplicity, let's calculate the tax on the first year’s entire investment. We're assuming it's now valued at about ₹2,40,000. From this amount, minus the 1.2L you invested in the 1st year. Then, minus the yearly 1L LTCG exemption. You're left with a taxable gain of ₹20,000. That's taxed at 10%, so you'll pay ₹2,000 in tax.
Here are two important points:
1. For funds sold within 1 year, short-term capital gains tax applies, which is 15% of gains.
2. Debt mutual funds are taxed at your income-tax rate.
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