We are now well known to the fact that government beginning this new financial year has imposed LTCG tax @ 10% on gains of over rs. 1 lakh in a year on stocks as well as equity mutual funds and for the purpose gains realized after January 31, 2018 are taken into account.
Also, similarly on equity mutual funds, dividend distribution tax has been levied which is chargeable to AMCs @ 10% but the story does not ends here, as now your dividend earnings will get deducted by the same amount. So, now the onus is all the more on you, to exercise a favourable decision for you.
Now as the more tax-efficient option, MF experts put their bet on SWPs or systematic withdrawal plan.
Dividend plan were your choice at the previous instance because it was a source of some regular income for you and in some cases that is also not definite. So, as a better call now in the wake of DDT levy go in for SWPs as precisely they are more rewarding.
Taxation of SWPs
For the taxation aspect, as against the dividend option in which the entire amount is chargeable to tax, herein only the component which has appreciated is charged, say you acquired the mutual fund at a cost of Rs. 200 and you have opted for Rs. 1000 for the monthly SWP, then only Rs. 200 will be subject to tax and it will be also the case after your profits for a year cross the threshold of Rs. 1 lakh.
Switching from the dividend option to growth option
The switch transaction amounts to a sale transaction and on it an exit load is charged in case of some schemes while for some it is free. And if the exit is being made in less than a year than short term capital gains tax @ 15% applies.