I wish to know about the tax treatment on equity fund investments through SIP
— Prateek Desai
When investing through systematic investment plans, each SIP instalment is treated as a separate investment. Hence, the tax treatment will depend on the holding period of each investment. For instance, if SIP investments made from June 2, 2009 to May 2, 2010 are redeemed in the month of January 2011; the gains on investments made till December 2009 will be treated as long term capital gains and the gains on the remaining investments made would be taxable as short term capital gains. However, any dividend received from investments in equity funds, either as lump sum or through SIP, is tax free in the hands of investor.
But do note, when you begin to redeem your units, the units that are first purchased will automatically be the first to be redeemed. It basically follows the principle of First-In, First-Out (FIFO).