Budget 2020 brought in many changes on tax regulations of investments. A huge impact of this change has occurred on the way dividends are taxed. Dividend Distribution Tax will be abolished with effect from 1st April 2020. Dividend will thereon be taxed as per the income tax slab. On a post-tax basis, it has now become more beneficial to select SWP under growth option if you want regular cash flows rather than dividend option.
What is an SWP?
A Systematic Withdrawal Plan allows investors to withdraw a pre-determined and fixed amount of money from their current investments at fixed intervals (daily, weekly, monthly and so on).
“The Finance Bill, 2020 proposed to remove Dividend Distribution Tax (DDT) at the level of Company/Mutual Fund and proposed to tax the same in the hands of share/unit holder. It was also proposed to levy TDS at the rate of 10% on the dividend/income paid by the Company/Mutual Fund to its share/unit holder if the amount of such dividend/income exceeds five thousand rupees in a financial year.”
– Ministry of Finance