Your SIP after tax: doing the post-tax return math on record Rs 31,781 crore of monthly SIP flows

India ran a record Rs 31,781 crore through systematic investment plans in a single month in June 2026, according to AMFI's monthly data. That figure is celebrated in every headline as proof of a maturing retail investor base, and it is. But it is a gross number. The rupee that leaves your bank account on the 5th of each month is not the rupee that lands back in your account on redemption. Between the two sits capital gains tax, and after the 23 July 2024 Budget rewrote the equity capital-gains schedule, the arithmetic of what you actually keep changed for every one of those instalments.

This piece does the post-tax math. It treats an equity mutual fund SIP as one product and the Public Provident Fund as the other, because they sit at opposite ends of the tax spectrum: equity gains are taxed but lightly, while PPF is fully exempt but capped and illiquid. If you are choosing where the next Rs 10,000 a month goes, the comparison that matters is not gross return against gross return. It is what remains after the Income Tax Department has taken its share, and the answer is less obvious than the marketing suggests.

The number nobody adjusts, and why each instalment is its own investment

The single most misunderstood feature of an equity SIP is that it is not one investment. Every monthly instalment buys units at that day's NAV, and each of those tranches carries its own acquisition date and its own holding period. Under Section 112A of the Income Tax Act, units of an equity-oriented fund held for more than 12 months are long-term; units held for 12 months or less are short-term and fall under Section 111A.

This has a mechanical consequence people rarely price in. If you started a SIP in January 2026 and redeem the whole folio in October 2026, the instalments from January through September have crossed 12 months and qualify as long-term, while the most recent three are still short-term. Redemptions follow first-in-first-out, so the oldest, longest-held, most-appreciated units are sold first, which usually works in your favour on the holding-period test but not always on the gain. The upshot is that a SIP does not "become long-term" on a single anniversary; it matures into long-term treatment one tranche at a time, month after month, exactly as it was bought through rupee cost averaging.

Side-by-Side Comparison

Here is the equity SIP set against PPF on the dimensions that decide post-tax outcomes. The PPF rate is the Government of India's notified 7.1% for the July-September 2026 quarter (Q2 FY 2026-27), left unchanged from the previous quarter. The equity return column is an illustrative 12% annualised assumption used only to show the mechanics; it is not a promise, and actual fund returns vary.

The headline contrast is stark. PPF is an EEE instrument: exempt on contribution, exempt on accrual, exempt on withdrawal, so its 7.1% is also its post-tax return. An equity SIP compounds faster on the illustrative assumption but hands back a slice on the way out, and whether that slice matters depends entirely on how, and how much, you redeem in any one financial year.

Tax Treatment

Everything post-2024 flows from the 23 July 2024 Budget, which reset both equity rates and the annual exemption. The current schedule is below.

Three details do most of the work. First, the Rs 1.25 lakh long-term exemption is per financial year, per person, and it resets every 1 April. Second, there is deliberately no indexation on equity LTCG any longer, which is the trade-off for the lower headline rate. Third, the surcharge on capital gains under Sections 111A and 112A is capped at 25% even for very high incomes, so the punitive old-regime figure does not apply to these gains.

Work a concrete case. Suppose in FY 2026-27 you redeem long-term equity units and realise a total long-term capital gain of Rs 2,00,000. The first Rs 1.25 lakh is exempt, leaving Rs 75,000 taxable. Tax at 12.5% is Rs 9,375, plus 4% cess of Rs 375, for Rs 9,750 total. The effective tax on the entire Rs 2,00,000 gain is 4.875%, not 12.5%, because the exemption absorbs most of it.

Now the short-term case. Redeem a tranche held under 12 months with a Rs 2,000 gain and it is taxed under Section 111A at 20%: Rs 400 plus Rs 16 cess, so Rs 416, and the STCG exemption of Rs 1.25 lakh does not apply because that carve-out is long-term only. The same Rs 2,000 gain, held one extra day past the 12-month line and sitting under your annual exemption, is taxed at zero. That single day is worth the entire 20%.

Worked example: gross XIRR against post-tax XIRR

The metric that captures a SIP's real performance is XIRR, because instalments arrive on different dates. Post-tax XIRR is simply the same calculation run on the amount that survives redemption. Consider a Rs 10,000 monthly SIP compounding at the illustrative 12% for a long horizon, then redeemed in staged tranches so that realised long-term gains in each year stay at or below Rs 1.25 lakh.

Because each year's first Rs 1.25 lakh of LTCG is exempt, a disciplined investor spreading redemptions across financial years can push a meaningful share of gains through at a 0% effective rate, and tax the remainder at 12.5%. On a modest annual redemption of, say, Rs 1,25,000 of gain, the tax drag is nil; on Rs 2,00,000 it is the 4.875% effective rate computed above. Against a lump-sum redemption of several lakhs of gain in a single year, where the exemption is used only once, the same corpus can attract a materially higher effective rate. The lesson is not that equity is tax-free; it is that the Rs 1.25 lakh annual door, used every year rather than once, is the single biggest lever on your post-tax XIRR. You can model your own instalment schedule on the SIP calculator and cross-check the redemption maths with the XIRR calculator.

By contrast, PPF needs no such tax planning: its 7.1% is already net. To beat PPF after tax, an equity SIP must clear roughly 7.1% grossed up for its own tax drag, which on the numbers above is a low bar over long horizons but a real one over short ones where STCG at 20% can dominate.

Who Should Pick Which

Match the instrument to the horizon and the tax the horizon implies.

The long-horizon wealth builder (10 years or more). Equity SIP wins on almost any reasonable return assumption once the holding period is comfortably past 12 months and the Rs 1.25 lakh exemption is worked every year. Over a decade the 12.5% LTCG on gains above the exemption is a gentle drag against equity's compounding, far lighter than PPF's fixed 7.1%. This investor should automate the SIP and plan staged redemptions.

The tax-sheltered saver who values certainty. If capital protection and a guaranteed, fully exempt return matter more than growth, PPF's 7.1% EEE profile and Section 80C deduction are hard to beat, subject to the Rs 1.5 lakh annual cap and the 15-year lock. A saver who cannot tolerate a drawdown belongs here, not in equity.

The Section 80C optimiser. A plain equity SIP earns no 80C deduction; only its ELSS cousin does, with a three-year lock-in and the same 12.5% LTCG treatment on exit. An investor under the old regime chasing the Rs 1.5 lakh 80C limit can split it between PPF for the guaranteed leg and ELSS for the equity leg, and compare the two on the PPF calculator.

The short-horizon investor (under 2 years). Equity is the wrong tool here: STCG at 20% under Section 111A plus market volatility can leave you worse off than a plain deposit. Neither product on this page fits a sub-two-year goal well; PPF is locked and equity is taxed hard on short holds.

FAQ

Is the Rs 1.25 lakh exemption available every year?

Yes. Under Section 112A the first Rs 1.25 lakh of long-term equity capital gains is exempt for each individual in each financial year, and the allowance resets on 1 April. It was raised from Rs 1 lakh to Rs 1.25 lakh in the 23 July 2024 Budget. It does not carry forward, so an unused exemption in one year is simply lost.

How is a SIP redemption taxed when some units are long-term and some short-term?

Each tranche is assessed on its own holding period. Units held more than 12 months are taxed as LTCG at 12.5% above the Rs 1.25 lakh annual exemption; units held 12 months or less are taxed as STCG at 20% under Section 111A. Redemptions follow first-in-first-out, so your oldest units are sold first. There is no blended rate; the fund house's capital gains statement splits it for you.

Does equity LTCG still get indexation?

No. The 23 July 2024 Budget removed indexation on equity LTCG entirely in exchange for the flat 12.5% rate. Indexation now survives only in limited cases for property and gold acquired before 23 July 2024, and never for listed equity or equity funds.

Is PPF interest taxable?

No. PPF is an EEE instrument: the contribution qualifies for Section 80C, the interest of 7.1% for Q2 FY 2026-27 accrues tax-free, and the maturity amount is exempt. There is no capital gains event because PPF is a fixed-income deposit, not a capital asset that is bought and sold.

What surcharge applies to my equity capital gains?

Surcharge on gains taxed under Sections 111A and 112A is capped at 25%, even for total incomes above Rs 5 crore. The new regime caps the surcharge at 25% across the board, so the topmost old-regime surcharge tier does not reach these capital gains at all.

Can I avoid tax by redeeming a little each year?

You can legitimately reduce it. By keeping realised long-term gains at or below Rs 1.25 lakh in a financial year, that slice is taxed at zero, and only the excess bears 12.5%. This is tax harvesting, not evasion, and it is why spreading redemptions across years lifts your post-tax XIRR versus a single large exit.

Does the SIP tax treatment change under the new regime?

The capital gains rates in Sections 111A and 112A are the same under both the old and new regimes; capital gains sit outside the slab structure. What changes is the deduction side: PPF's Section 80C benefit and ELSS 80C benefit are available only under the old regime, so a new-regime taxpayer keeps the equity LTCG treatment but loses the 80C sweetener.