I have Rs 15 lakh at my disposal from which I wish to draw Rs 15,000 every month by putting it in a mutual fund over the next 4-5 years. What will be the tax implications in doing so?
Tax implications depend on the type of fund and on the perios od investment
I have Rs 15 lakh at my disposal from which I wish to draw Rs 15,000 every month by putting it in a mutual fund over the next 4-5 years. What will be the tax implications in doing so?
Gurpreet Kochar, Gurgaon
It is a good move to put your money into a fund and at the same time withdraw money from it. This way, the lump sum that you invest, will also have the potential to earn returns, even as you make regular monthly withdrawals. However, there are tax implications when you withdraw from a fund, which depends on the type of fund in which you have invested. For instance, taxation of debt and equity funds is different.
If you withdraw your investments in equity mutual funds after 12 months, the investment qualifies for long-term capital gains tax which is nil. If you sell your equity mutual fund investments before 12 months, you will have to pay a short-term capital gains tax at a flat rate of 15 per cent. Debt mutual funds qualify for long-term capital gains tax only if investments are held for three years. 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.
As you will be withdrawing regularly from the fund in which you have invested the lump sum, you should use the Systematic Withdrawal Plans (SWP) option. When using the 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.
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