Short Term Capital Gain Tax
Your investment is making you rich and you decide to withdraw money from mutual fund within 1 year of investment. As per Indian law, the profit on your investment qualify for tax under Short term capital gains tax (STCG). The period before which tax is levied is different for different types of funds.
All debt and liquid funds have a period of 36 months while balanced and equity funds have a period of 12 months for STCG tax to be applicable. Also, STCG on debt funds is based on your income slab and STCG on equity and balanced funds is flat 15%.
Lets understand this from an example.
Suppose you make an investment of Rs 1,00,000 in a debt fund and decide to withdraw it after 2 years. The current value of your investment is 1,10,000 . Because STCG tax is based on your income tax bracket and you lie in 20% bracket then tax applicable will be (20/100)* 10,000 = Rs 2,000.
If you make a profit of Rs10,000 on equity or balanced fund, then you would need to pay (15/100)* 10,000 = Rs 1500 as STCG tax.
In case of SIP, only the units which you obtain within last 1 year (or 3 years in case of debt funds) are applicable for STCG tax. Rest units qualify for Long term capital gains which we will see in next chapter.