Now Reading: Using SWPs for home loan prepayments faces tax hurdles
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Using SWPs for home loan prepayments faces tax hurdles
Tax experts caution against using Systematic Withdrawal Plans (SWPs) from mutual funds to prepay home loans, as each monthly withdrawal is treated as a separate tax event. This fragmentation can conflict with…
The Story in Brief
Tax experts caution against using Systematic Withdrawal Plans (SWPs) from mutual funds to prepay home loans, as each monthly withdrawal is treated as a separate tax event. This fragmentation can conflict with Section 54F of the Income Tax Act, which requires capital gains to be reinvested in a residential property within specific timelines. Cleartax founder Archit Gupta warns that such a strategy could trigger automated scrutiny and lead to disallowances by assessing officers.
Instead, Gupta recommends a single, consolidated lump-sum redemption of long-term capital gains within the prescribed window. This provides a clearer audit trail and reduces the risk of tax litigation. Section 54F exemption is available under both old and new tax regimes, but the provision is designed around reinvesting sale proceeds in one go, not through periodic withdrawals.
The Indian Opinion
Convenience is not the same as compliance. The narrative that SWPs offer a smart way to manage cash flows while servicing home loans ignores how tax laws treat each withdrawal as an independent transaction. The real test is whether a home buyer can prove a clear chain of reinvestment to the assessing officer. A single lump-sum redemption within the two-year window is safer than inviting scrutiny over fragmented withdrawals. Why risk a tax notice for the sake of monthly flexibility?
Source: livemint.com
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