Tax on SWP
Withdrawals from an equity mutual fund are partly your own money back and partly gain. Only the gain is taxed. Rules for FY 2026-27.
You keep 97.3% of every withdrawal
Over 10 years you withdraw ₹72L and pay ₹1.92L in tax: only the gain in each withdrawal is taxed, and long-term gains up to ₹1.25L a year are free. In year 5, that’s about ₹1,344 a month.
Against an FD paying the same
An FD taxes all its interest at your 30% slab, every year, whether you withdraw it or not.
The SWP saves about ₹34.5L in tax. Equity returns aren’t guaranteed, though.
Year-by-year table10 years
| Year | Withdrawn | Your money | Gain | Tax | After tax |
|---|---|---|---|---|---|
| 1 | ₹7,20,000 | ₹6,89,484 | ₹30,516 | ₹6,347 | ₹7,13,653 |
| 2 | ₹7,20,000 | ₹6,26,803 | ₹93,197 | ₹1,135 | ₹7,18,865 |
| 3 | ₹7,20,000 | ₹5,69,821 | ₹1,50,179 | ₹3,273 | ₹7,16,727 |
| 4 | ₹7,20,000 | ₹5,18,019 | ₹2,01,981 | ₹10,007 | ₹7,09,993 |
| 5 | ₹7,20,000 | ₹4,70,927 | ₹2,49,073 | ₹16,130 | ₹7,03,870 |
| 6 | ₹7,20,000 | ₹4,28,115 | ₹2,91,885 | ₹21,695 | ₹6,98,305 |
| 7 | ₹7,20,000 | ₹3,89,196 | ₹3,30,804 | ₹26,755 | ₹6,93,245 |
| 8 | ₹7,20,000 | ₹3,53,814 | ₹3,66,186 | ₹31,354 | ₹6,88,646 |
| 9 | ₹7,20,000 | ₹3,21,649 | ₹3,98,351 | ₹35,536 | ₹6,84,464 |
| 10 | ₹7,20,000 | ₹2,92,408 | ₹4,27,592 | ₹39,337 | ₹6,80,663 |
How this is calculated
Units are redeemed first-in, first-out. Each withdrawal’s gain is its value minus what those units cost. Units held over 12 months are long-term.
tax = 20% × short-term + 12.5% × (long-term − ₹1.25L), + 4% cess
The ₹1.25 lakh exemption is per person per year across all equity gains; if you sell other equity, there’s less of it left for the SWP. Debt funds bought after April 2023 are taxed at your slab rate instead.
A guide for planning, not tax advice.