Capital gains on SIPs — the FIFO unit-level treatment

The capital gains treatment of a SIP is one of the more surprising areas for first-time investors. Every monthly instalment is a separate purchase in the eyes of the Income Tax Act — and the rules play out at that granularity.

Per-instalment cost basis

Each SIP instalment buys a specific number of units at the NAV on the allotment date. The cost basis of those units is the gross amount divided by the NAV (post stamp duty, where applicable). The holding-period clock for each instalment runs from its own allotment date.

FIFO at redemption

When you redeem, AMCs apply First-In-First-Out: the units bought earliest are deemed sold first. So a partial redemption from a long-running SIP will typically pull from long-term units; a full redemption pulls from both buckets in sequence.

A worked example

You started a ₹10,000 SIP in an equity fund in July 2023. After 3 years (36 instalments), you redeem the entire holding in July 2026.

• The Jul 2023 to Jun 2025 instalments are all > 12 months old → LTCG, 12.5% above ₹1.25 lakh exemption.
• The Jul 2025 instalment (12 months old) and any from Aug 2025 onwards → still LTCG if held > 12 months.
• In a full redemption like this one, the proceeds are split between LTCG and STCG based on per-instalment age.

What your AMC gives you

AMC year-end capital gains statements (sometimes called "Tax Statement") break the redemption down instalment by instalment and compute the LTCG / STCG totals automatically. This is the canonical source for ITR-2 filing — manually replicating the FIFO maths is tedious and error-prone.

Direct vs growth: a small wrinkle

If you've been switching between Direct and Regular plans of the same fund, those switches are themselves taxable events that reset the cost basis. The FIFO clock starts afresh for the new units.