This is a question on taxation related to SIP on Mutual Funds. As I understand, capital gains on equity-oriented mutual funds are not taxable if the units were sold after one year from purchase & the STT was paid. Suppose, I choose to go with a SIP and invest from January 2006 to December 2006 a fixed amount every month. In March 2007, I decide to sell off all the units that I had purchased. In such a case, does SIP offer a shield that the entire capital gain will be tax-free … ? Or does it still mean that only the units purchased in Jan-06 and Feb-06 can be under long-term capital gains and balance under short-term … ? manish.bapat@gmail.com
The SIP i.e Systematic Investment Plan- is a term coined my mutual fund industry. It has no place under I T Act. The shares or mutual fund units become long term capital asset on completing one year of holding by the person. The long term capital gains , if sold by paying STT, is tax free. Therefore, your second observation that- purchased in Jan-06 and Feb-06 can be under long-term capital gains and balance under short-term -is correct . SIP will not help in taxation anyway.
About taxworry
This is not correct….I refered the same question to a IT guy and he told me that what ever SIP for more than a year is non taxable….because you the profits too are prorated.