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How to calculate capital gains tax in an SWP?

Systematic withdrawal plans or SWPs are subject to tax and it depends on the type of funds you are withdrawing from

How to calculate capital gains tax in an SWP?

If I opt for an SWP from a fund where I have units purchased during various times and different high/low prices, how can I calculate the capital gains? - Mohan Gangaramani

What is an SWP?
A systematic withdrawal plan (SWP) is a method whereby investors redeem their money either from equity funds or debt funds, depending on their investment needs. SWPs allow redemption of mutual fund units in a staggered manner which, in turn, averages the price at which one exits the market.

Tax implications in SWPs
In mutual funds, any redemptions through SWPs are subject to taxation. SWP redemption is as per the first-in-first-out (FIFO) method wherein units bought first are assumed to be redeemed first. However, there are different tax structures for debt funds and equity funds.

  • For debt funds
    In case of debt funds, if investments are held for more than three years, you pay 20 per cent tax with indexation benefits. However, if the investments are redeemed before three years, the short-term capital gains will be added to your overall income and taxed as per your income tax slab.
  • For equity funds
    In case of equity funds, investments withdrawn within 12 months would qualify for short-term capital gains and will be taxed at 15 per cent. If investments are withdrawn after 12 months, long-term capital gains in excess of Rs 1 lakh will be taxed at 10 per cent.

However, to make the tax calculation easy, you can check the capital gains tax liability on unrealised gains on your investment platform. You do not need to do much work as the process is automated and generally offered by the platform through which you are investing.

Alternatively, you can go to 'My Investments' on Value Research Online, upload your investments (which is automatic and hassle-free) and get your tax report.

Suggested read: Mutual fund redemption and taxation

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