Question

What is the tax treatment of a Systematic Withdrawal Plan (SWP) from an equity mutual fund?

Accepted Answer

Each SWP redemption is a taxable event — STCG at 15% or LTCG at 12.5% depending on whether the units being redeemed (FIFO basis) have been held for less or more than 12 months — SWP involves periodic redemptions from the scheme. Each redemption is a taxable event — capital gains are computed on the units redeemed (FIFO basis). If the redeemed units were held for more than 12 months, LTCG at 12.5% (above ₹1.25 lakh total annual LTCG) applies; if less than 12 months, STCG at 15% applies. Investors using SWP for regular income must plan their tax liability accordingly.