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SIP Tax Guide

Tax on SIP in India: Is the Maturity Amount Taxable?

A SIP has no maturity date and isn't taxed while you stay invested. You pay capital gains tax only on the units you redeem, and only on the gain.

October 13, 20266 min readBy Shivaani Mehrra

The short answer

For equity funds, gains on units held up to 12 months are taxed at 20%. Gains on units held longer are taxed at 12.5% above ₹1.25 lakh a year. Each SIP instalment has its own holding period, and the oldest units are treated as sold first.

Key Takeaways

  • No tax falls due while you stay invested in a growth option.
  • Every SIP instalment counts as a separate purchase with its own date.
  • Units are sold first-in, first-out (FIFO), so your oldest units go first.
  • The rates here exclude surcharge and 4% cess, which apply on top.

1When is a SIP taxed?

Tax falls due when you redeem or switch units, not when you invest and not when the NAV rises. An open-ended SIP doesn't mature. It simply stops when you stop it, and your units stay invested until you sell.

A regular SIP gives no tax deduction. Only ELSS qualifies, and only under the old tax regime.

2SIP tax rates by fund type

Fund typeHeld up to 12 monthsHeld over 12 months
Equity funds (65%+ in Indian equity)STCG at 20%LTCG at 12.5% above ₹1.25 lakh a year
Debt funds bought on or after 1 April 2023Your income slabYour income slab

STCG means short-term capital gains, and LTCG means long-term capital gains. Hybrid, gold and international funds have their own rules. See the capital gains tax guide and equity vs debt fund taxation.

3Worked example: redeeming a 2-year equity SIP

Say you invested ₹10,000 a month for 24 months in an equity fund, and redeem everything at ₹3,00,000. You invested ₹2,40,000, so your total gain is ₹60,000. These figures are only an illustration.

InstalmentsGain assumedTypeTax
Oldest 12₹45,000LTCG₹0 (within ₹1.25 lakh)
Latest 12₹15,000STCG₹3,000 (20%)

The whole SIP is two years old, but the last 12 instalments are still short-term. Waiting for them to cross 12 months could reduce the tax on those gains, though the market can move while you wait.

4How to reduce tax on a SIP

  • Redeem only what you need. Partial redemption sells your oldest units first, which are more likely to be long-term.
  • Use the ₹1.25 lakh exemption. It resets each financial year. The LTCG harvesting calculator shows how much gain you can book tax-free.
  • Watch exit loads. Some funds charge one on units redeemed early, in addition to any tax.

Sources & References

Frequently Asked Questions

Common questions about tax on SIP investments.

Is the SIP maturity amount taxable?

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A SIP has no maturity amount in itself, because it's just a way of buying units regularly. When you redeem, only the gain is taxed, not the amount you invested. Equity and debt funds are taxed at different rates, and each instalment has its own holding period.

How much tax is payable on a SIP?

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For equity funds, 20% on gains from units held up to 12 months, and 12.5% on gains above ₹1.25 lakh a year from units held longer. Debt fund units bought on or after 1 April 2023 are taxed at your income slab. Surcharge and cess are extra.

What is STCG in mutual funds?

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STCG stands for short-term capital gains. For equity funds, it's the gain on units sold within 12 months of purchase, taxed at 20%. In a SIP, each instalment is a separate purchase, so only the units held 12 months or less count as short-term.

Do I pay tax on a SIP every year?

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Not in a growth option, unless you redeem or switch. In an IDCW option, payouts are added to your income and taxed at your slab in the year you receive them. Buying more units each month through the SIP never triggers tax by itself.

Does a SIP become long-term after one year?

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No. Each instalment has its own 12-month clock. After 13 months, only the first instalment or two have crossed 12 months. If you redeem everything then, most units are still short-term, and equity gains on them are taxed at 20%.

Which units are sold first when I redeem a SIP?

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The oldest units are treated as sold first, under the first-in, first-out (FIFO) method. So in a SIP, your earliest instalments are redeemed first, and they are the likeliest to have crossed the 12-month mark and qualify for the lower long-term rate.

Does a SIP give a tax deduction?

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Only an ELSS SIP does, and only under the old tax regime, up to ₹1.5 lakh a year shared with other eligible investments. A SIP in any other equity or debt fund gives no deduction, though you still pay tax on its gains when you redeem.
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