Income Tax on SWP for Monthly Income | SWP Taxation [VIDEO]

SWP or Systematic Withdrawal Plan is a way to get monthly income based on the amount you have saved in mutual funds. This amount helps you to cover the monthly expenses and also as a source of passive income. But it is also important to understand the SWP Taxation and how income tax will be calculated on SWP.

Let us understand SWP taxation with examples. Watch below video to see how income taxon SWP is calculated.

Income Tax on SWP for Monthly Income Video

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What is SWP?

SWP full form is Systematic Withdrawal Plan
It helps you to get monthly income which will cover your expenses
You invest via SIP (Systematic Investment Plan) and accumulate required funds to get retirement
This accumulated funds can then be used to systematically withdraw from mutual funds to cover your monthly expenses
Hence SWP is one of the best options to get monthly income with expected returns of 10% to 15%
It is important to note that while you withdraw the funds systematically, you also have to pay income tax on the amount
This income tax will be based on the amount you withdraw every month
The tax can be calculated either as STCG (Short Term Capital Gains) or LTCG (Long Term Capital Gains)
The tax rate of STCG is 20% and LTCG is 12.5% on the profits

Let us now understand STCG and LTCG income tax on SWP.

How Income Tax is Calculated on SWP

Based on the time of your withdrawal from mutual funds, the gains can be classified as STCG or LTCG
STCG full form is short term capital gains, which means, if you withdraw the funds within 1 year of investments, you have to pay 20% tax on the profits made
LTCG full form is long term capital gains, which is taxed at 12.5% on profits above Rs. 1.25 Lakh in a financial year
Hence, you can convert the short term gains into long term gains to lower your income tax
Also, the first Rs. 1.25 Lakh will be exempted every financial year in case you hold the mutual fund units over long term

You can also download the SWP Excel Calculator to check the monthly income you can get on the accumulated funds using below button:

How to Save Income Tax on SWP Withdrawal

As mentioned above, LTCG or long term capital gains can help you to lower your income tax
In case you have been investing for more than 1 year and holding the mutual funds, you can redeem those units that have the holding period of more than 1 year
This will help you to avoid the 20% STCG tax and pay only 12.5% tax on LTCG, on the profits made above 1.25 Lakh
This is the only way to save income tax on withdrawal of SWP that gets you monthly income

ALSO READ: Benefits of SWP in Mutual Funds

SWP vs SIP

SWP and SIP complement each other
In order to get monthly income from SWP, you need to reach the enough corpus, which can be done using SIP
SIP helps you to slowly and steadily move towards your financial goals and accumulate required funds
For example, just with Rs. 2000 monthly SIP you can reach to lakhs of rupees in next 10 to 15 years

Watch below video on Rs. 2000 monthly SIP:

Rs. 2000 SIP Returns on 15 Years Video

You can also download the SIP & lumpsum excel calculator using below button:

Conclusion

So SWP is a great way to get monthly income that will cover your monthly expenses and plan for your vacations, you should be aware that you need to pay STCG or LTCG tax on the withdrawal amounts.

While the tax rate of STCG is 20%, LTCG tax rate is 12.5% which needs to be paid on profits above 1.25 lakh in a financial year. Hence, if the holding period of mutual funds is more than 1 year, you pay less income tax on the withdrawals.

Get EARLY Retirement!

Use Retirement Excel Calculator that will help you to Retire Early.
Click below button to download Retirement Calculator in Excel:

Watch how Retirement Calculator in Excel Works

Income Tax Calculator App – FinCalC

For Income Tax Calculation on your mobile device, you can Download my Android App “FinCalC” which I have developed for you to make your income tax calculation easy.

What you can do with this mobile App?

Calculate Income Tax for new FY 2024-25 and previous FY 2023-24
Enter estimated Investments to check income tax with Old and New Tax Regime
Save income tax details and track regularly
Know how much to invest more to save income tax
More calculators including PPF, SIP returns, Savings account interest and lot more

Download Income Tax Calculator APP from play store

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