SWP Taxation 2024-25: How LTCG Will Be Calculated After Tax Rate Change
A Systematic Withdrawal Plan (SWP) is a popular way to generate steady income from mutual funds. However, taxation of withdrawals depends on Long Term Capital Gains (LTCG) rules. For FY 2024-25, there is an important change:

• LTCG tax rate increased from 10% to 12.5%
• Exemption limit increased from ₹1,00,000 to ₹1,25,000

This has created confusion among investors withdrawing through SWP. Let’s understand with an example.

Example Case

• Total Withdrawal (SWP): ₹2,80,000
• Break-up: ₹80,000 withdrawn in first 3 months, ₹2,00,000 withdrawn in next 9 months
• Tax Rule Change:
  • Before change → LTCG taxed @10%, exemption ₹1,00,000
  • After change → LTCG taxed @12.5%, exemption ₹1,25,000

Important Clarification on Exemption
Many investors assume they can claim ₹1,00,000 exemption + ₹1,25,000 exemption separately because of the mid-year rule change. This is incorrect.
 The exemption on LTCG is annual — not period-based.
 For FY 2024-25, the final exemption available is ₹1,25,000 (once for the entire year).
 What changes mid-year is only the applicable tax rate (10% vs 12.5%), not the exemption applied twice.

Correct Calculation Method

1. Compute total LTCG for the year (from all withdrawals).
2. Apply single annual exemption of ₹1,25,000.
3. On the remaining taxable gains:
   • Portion realized before the rule change → taxed @10%
   • Portion realized after the rule change → taxed @12.5%

Key Takeaways

• Exemption of ₹1,25,000 is available once per year, not twice.
• Withdrawals before the change are taxed at 10%, after the change at 12.5%.
• Investors must split gains into two periods (before and after rule change) but apply only one annual exemption.
• Always maintain records of SWP transactions for accurate tax filing.

Conclusion
If you are withdrawing through SWP in FY 2024-25, remember:

• One annual LTCG exemption of ₹1,25,000
• Two different tax rates (10% & 12.5%) depending on when gains were realized

This ensures proper tax compliance and avoids the mistake of claiming double exemption. For exact tax liability, consult your CA or financial advisor.

But how to find capital gain on SWP value.

How to Calculate Capital Gains on SWP Withdrawals
Step 1: Understand SWP Structure
When you set up an SWP, you redeem a certain number of mutual fund units every month/quarter.

• Each redemption has a NAV (Net Asset Value) on the withdrawal date.
• Number of units redeemed × NAV = Withdrawal Amount.
• Out of this, part comes from your invested principal, and part is appreciation (capital gains).

Step 2: Apply FIFO (First-In-First-Out) Rule
For capital gains in India, the FIFO method is used.

• Units purchased earliest are considered sold first.
• This ensures correct holding period classification (Short-Term or Long-Term).

Step 3: Calculate Capital Gain on Each Withdrawal
For every SWP redemption:
Capital Gain = (Redemption NAV – Purchase NAV) × Units Redeemed
Example:

• You invested ₹5,00,000 in a mutual fund at NAV ₹50 → got 10,000 units.
• NAV after 1 year = ₹70.
• You withdraw ₹70,000 through SWP → at ₹70 NAV, 1,000 units redeemed.
• Purchase price of those 1,000 units (FIFO) = ₹50 × 1,000 = ₹50,000.
• Capital Gain = 70,000 – 50,000 = ₹20,000.
• Taxable LTCG = ₹20,000 (after adjusting for exemption).

Step 4: Repeat for Each SWP Transaction
Each monthly/quarterly withdrawal is treated as a separate redemption, and gains are calculated individually.

Step 5: Apply LTCG Tax Rules

• For equity mutual funds (held >1 year):
  • Exemption = ₹1,25,000 (FY 2024-25 onwards)
  • Balance LTCG taxed @10% (till rule change) or 12.5% (after change)
• For debt mutual funds (no indexation after April 2023):
  • Taxed as per slab rate (if short-term), or
  • At 20% with indexation (if purchased before April 2023 rules).

✅ In short:

• Break each withdrawal into units redeemed
• Apply FIFO to match purchase price
• Compute capital gain = redemption value – cost
• Apply exemption & tax rate depending on date of withdrawal

 
Generally your broker provide you the full detail of capital gain for each year.