Ch.8 · Dividend and STT Taxation · medium
What is the tax implication of choosing IDCW option vs Growth option for an equity fund investor in the 30% tax bracket?
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EXPLANATION
For investors in the 30% tax bracket, the Growth option is significantly more tax-efficient than IDCW. IDCW is taxed at 30% (slab) while LTCG from Growth option is at 12.5% (with ₹1.25 lakh exemption). Additionally, Growth option retains all income within the scheme for compounding, while IDCW distributes it (reducing the compounding base and triggering immediate taxation). The difference compounds dramatically over long periods.
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