I would like to know about the tax treatment for MIPs? Are their returns treated as dividends or as capital gains?>br>—Shailesh Rawat
Tax treatment of returns from Monthly Income Plans (MIPs) depends on the way you derive them. If you opt for dividend plan, then like all debt funds, MIPs are liable for Dividend Distribution Tax (DDT) which is 12.5 per cent for debt funds.
If you choose the growth plan, all gains will be treated as short-term or long-term depending on your period of holding. Any short-term gain (less than 1-year holding) from debt funds is added to your income. Long-term gain from MIPs is taxed at 10 per cent without indexation or 20 per cent with indexation, whichever is lower.
Deriving gain from an MIPs Growth option through Systematic Withdrawal Plan (SWP) could be more tax efficient than dividend plan. SWP is redemption of units worth predefined amount and periodicity. Besides, you will also have a greater control on your cash inflows.
This article was originally published on September 22, 2008.
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