LTCG tax on Mutual Fund SIP

No, your working is wrong.

In case of Mutual Fund SIP, you get units every month based on NAV.

So if in 5 years you invest 6 Lakhs, you need to also see total no. of units that you have accumulated. Say in 5 years you have accumulated 6000 units i.e. it makes Rs. 100 per unit.

Now in 7th year, when your MF value is 12 Lakhs, total no. of units remains same as you are not investing after end of 5 years. So technically, your value of 12 Lakhs is for 6000 units only i.e. it makes Rs. 200 per unit.

Now when you redeem only Rs. 7 Lakhs, so you are technically redeeming only 3500 units (6000 * 7L / 12L)

So your cost of acquisition for 3500 units shall be only Rs. 3.5L (3500 units * Rs. 100 per unit)

 So basically your LTCG shall be Rs. 3.5 Lakhs ( 7 L redeem value - 3.5 L cost of acquisition) and accordingly you will be liable for taxation.

Please note that above example is just to make your logic clear, I haven't considered indexation and FIFO method to derive cost of acquisition. I hope it cleares your query though.  

Thank you Mr. Sahil for sparing your time and giving such a well articulated response. That has cleared all my doubts.

The real problem is that I see my fund is not performing well compared to peers and want to exit the fund.So every time I switch the fund, I end up paying tax even if I am not going to consume it (as I would remain invested but in another fund). Had I stayed invested till the end in the same fund I would pay only once but here I would end up paying for switching over a bad performing fund. Seems like a double edge sword. Isnt there a remedy to this?

(If I am not mistaken, for LT gains in real estate I think one will not be taxed (or may be nominally) as long as he re-invests again in real estate.) 

Any pointers will be helpful?

Sorry but I dont think I understood this. Are you saying gains from mutual funds can get exemption u/s 54?