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Dividend On MFs Now Taxable: Where To Invest For Regular Income?
In the Union Budget delivered on February 1, 2020, by the Finance Minister Nirmala Sitharaman there has been proposed a new tax regime that would reduce one's tax liability and hence leaving more of cash in the hand of individuals. While this may sound tempting, what it may cost is prudent financial planning for the future. This may be because, with the new regime, individuals will have to forego certain deductions and exemptions that came with a contribution towards some of the tax-saving investment avenues (Section 80C).
But nonetheless, if you are prudent enough on financial line, you can take still better calls when it comes to investing with greater flexibility in your hand with respect to both time frame as well as investment options:
So considering different needs we suggest you investment options:
1. In a case when regular cash flow is not needed:
As now dividend mutual funds are taxed in the hands of investors' with the government repealing DDT, even in the case when it is prompting companies to offer more of dividends, one should definitely be opting only for growth plans of mutual fund schemes. Here for equity mutual funds, the gains shall be taxed in case capital gains are over Rs. 1 lakh in a financial year at the rate of 10%. And that too if the holding period is over 1 year.
In the case of debt mutual funds, if the holding period is over 3 years then taxation at the rate of 20% after indexation applies.
2. In a case when regular funds are required:
Here distributed dividends which though are not sure help a great deal in meeting regular financial needs, nonetheless in the new regime with the abolition of DDT and its incidence in the hands of investors, dividend option shall not be wise choice. Instead, investor can choose the SWP or Systematic withdrawal option. Here in the investor can select the frequency as well as the amount he or she wishes to receive as regular cash flows.
Also, when it comes to choosing between new tax regime or sticking to the existing regime, a study has found that if exemptions such as section 80C are availed taxpayers are able to save taxes. Nonetheless when exemptions are not availed as that can be the case with many taxpayers individuals are left with more cash in their hands.
Taxpayers in lower-income slabs are considered to be saviours if they switch to the new regime and not the ones with higher income as for them the tax liability would increase.
