In one word the answer is yes. There is really no rocket science to it. You will end up paying 10% tax on LTCG when you redeem your equity fund corpus. Will the LTCG tax be there when you retire? We are not sure whether the LTCG tax will still be in existence at that point of time, but let us assume that it still exists. Your final corpus will be reduced to that extent. Let us understand the impact with a comparison…

Pre LTCG Tax

Amount

Post LTCG Tax

Amount

Retirement SIP monthly

Rs.10,000

Retirement SIP monthly

Rs.10,000

Tenure of SIP

25 years

Tenure of SIP

25 years

Invested in

Equity Funds

Invested in

Equity Funds

CAGR returns

14%

CAGR returns

14%

Amount Contributed

Rs.30,00,000

Amount Contributed

Rs.30,00,000

Final Corpus

Rs.2,72,72,777

Final Corpus

Rs.2,72,72,777

Long Term Capital Gain

Rs.2,42,72,777

Long Term Capital Gain

Rs.2,42,72,777

Basic Exemption

Not Applicable

Basic Exemption

Rs.1,00,000

Taxable LTCG

Not Applicable

Taxable LTCG

Rs.2,41,72,777

Tax on LTCG

Nil

Tax on LTCG at 10%

Rs.24,17,278

Net Corpus on hand

Rs.2,72,72,777

Net Corpus on hand

Rs.2,48,55,499

As can be seen from the above table, the final corpus in the post LTCG scenario is lower by over Rs.24 lakh or 10% lower than the originally intended corpus. If you put things in perspective, the exemption of Rs.1 lakh is very small when we consider the massive capital gains that will result in equities over a period of time. This gets more pronounced in this case as there is no indexation benefit available to the investor. Effectively, if the investor had a corpus of Rs.2.72 crore in mind, then it is essential to reduce that figure down to Rs.2.48 crore. Alternatively, you will have to approximately hike the monthly EMI contribution by 10% to maintain your corpus intact. Your regular income will be received on this lower corpus after retirement and hence you need to adapt accordingly.

How much difference will this reduced corpus make in terms of regular income, assuming that you will depend on this corpus to fund your retirement? Assuming that you were to deposit this corpus in a liquid fund earning 6% per annum, your monthly inflow post retirement will reduce from Rs.1,36,364 to Rs.1,24,2777. You need to work out proactively to plug this gap.