Taxation on Investment

Taxation on UCMS Investment Schemes can be explained further by pointing out the factors influencing it. Here are the essential factors that affect the taxes levied on investment funds:

Capital Gain: When investors sell their capital units at a higher price than their total investment amount, the profit is termed as capital gain.

Holding period of Investor: Time between the date of the purchase and sale of units. As per the income tax regulations of India, if you hold your investment for an extended period, you will be liable to pay a low tax amount. Thus, the holding period influences the tax rate payable on your capital gains. The higher your holding period, the lesser the tax you are liable to pay.

Factors to determine Tax on Investment Scheme

You purchase a certain number of units through every SIP instalment. The redemption of these units is processed on a first-in-first-out basis. Suppose you invest in an equity fund through an SIP for one year, and you decide to redeem your entire investment after 13 months.

In this case, the units purchased first through the SIP are held for the long term (over one year) and you realise long-term capital gains on these units. If the long-term capital gains are less than Rs 1 lakh, then you don’t have to pay any tax.

However, you make short-term capital gains on the units purchased through the SIPs from the second month onwards. These gains are taxed at a flat rate of 15% irrespective of your income tax slab. You will have to pay the applicable cess and surcharge on it.

Securities Transaction Tax (STT)

Apart from the tax on Capital gains, there is another tax called the Securities Transaction Tax (STT). An STT of 0.001% is levied by the government (Ministry of Finance) when you decide to buy or sell units of an equity fund.

Taxation on Capital Gains