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How are SWPs taxed?

Mutual fund withdrawals are subject to tax depending on the category of the funds

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I wish to invest R20 lakhs and stay invested for 5 years with a withdrawal of R20,000 monthly or R60,000 quarterly. Will the amount withdrawn be taxable?
- Aditi

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Mutual fund withdrawals are subject to tax depending on the category of the funds you own. Debt funds and equity funds are taxed differently. Systematic Withdrawal Plans (SWP) redemption is as per first in first out (FIFO) method wherein units first bought are assumed to be redeemed first. Hence your costs for the purpose of taxation will be considered as per FIFO method.

If you redeem/withdraw your investments in equity mutual funds after 12 months, your investments would qualify for long-term capital gains tax.Long-term capital gains in excess of Rs 1 lakh are taxed at 10 per cent currently. If you sell your equity mutual fund investments before 12 months, you will have to pay a short-term capital gains tax at a rate of 15 per cent.

Debt mutual funds qualify for long-term capital gains tax only if investments are held for three years or more. The long-term capital gains tax on debt funds is 20 per cent with the inflation indexation benefit on your original investments. If debt mutual fund investments are sold before three years, the short-term gains are taxed as per your applicable income tax slab.

Your SWPs will also be taxed as per the above rules. Based on your requirement and tax slab you can plan your SWP accordingly.

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