Is there a concrete mathematical equation to calculate income tax on SIP returns? Difficulty finding it anywhere!

POSTED BY anon smith ON August 18, 2012 10:31 am COMMENTS (5)

Hi,

Most answers in forums have a “liable to tax” or “not liable to tax” depending on the SIP type, but I couldn’t find any information anywhere about the calculation.

Assumptions:

1. Pure equity SIP in India

2. Investing Rs. A annually (A/12 monthly) for n years, resulting in a return of rs.F at a CAGR of r%. F falls in the highest income tax bracket (30%) (if this is relevant) 

3. n is about 10-15 years. Is it possible to invest for much longer periods for a retirement plan? (say 30-35 years)

Questions:

1. I heard there are no LTCG taxes (I think which apply to longer than 1 year) if it’s pure equity. Are there other taxes I need to consider? 

2. I Couldn’t find a concrete relation for how much would remain after getting SIP returns. I am trying to get my financial planning done. Is it naive to assume that income tax is 30% of (F-nA)? 

I calculated F as sum of a geometric progression: A+AR+…AR^(n-1) which is a*(R^n – 1)/(R-1), where R = 1+CAGR. (Assuming a CAGR of 12% or 0.12) 

Thanks a lot for your help.

5 replies on this article “Is there a concrete mathematical equation to calculate income tax on SIP returns? Difficulty finding it anywhere!”

  1. anon smith says:

    @Ashal,
    I believe currently there’s no need to pay tax. I am not sure if it’ll change later. The bottomline being I need to maximize what I have at retirement and in SIP vs FD for 30-35 years, I find SIPs the most attractive. Even if taxes get introduced on SIP, I don’t expect them to be higher than FDs while SIPs offer much better returns.

    1. Dear Anon, as you are not sure of the Tax rate after 20-25-35 years, what should be your priority now? Trying to build a large corpus or start worrying for the impact of taxation for all these years, although you are not going to redeem in between.

      Thanks

      Ashal

  2. anon smith says:

    @Ashal,
    I believe currently there’s no need to pay tax. I am not sure if it’ll change later. The bottomline being I need to maximize what I have at retirement and in SIP vs FD for 30-25 years, I find SIPs the most attractive. Even if taxes get introduced on SIP, I don’t expect them to be higher than FDs while SIPs offer much better returns.

  3. Dear Anon, can you tell me what ‘ll be the Tax rate after this 5-10-15-20-35 years period for your SIP?

    Thanks

    Ashal

  4. But there is no LTCG on equity funds ,so you dont need to worry about the tax part , this is as per current tax laws , tomm if after 5 yrs something changes and govt says that tehre will be tax on the profit part even on Equity investments started earliar , then you cant do much , but chances of that happening is almost nil .

    Now next point is that , Equity part which has not completed 1 yr , will still be taxable , like if you have SIP for 10 yrs , so money invested 9th year onwards , will be taxable .

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Download Our FREE Ebook!

Available only for first 100 people today

Download Our FREE Ebook!

Available only for first 100 people today