Best Tax-Efficient Options to Invest ₹50 Lakh for Regular Income: Experts Explain New Rules

By Siddhi Jain | Nov 20, 2025, 18:34 IST

Many investors planning to settle in India look for safe and tax-friendly ways to generate regular income from a large corpus. One of them is Mahesh Jain, a 54-year-old NRI, who wants to invest ₹50 lakh equally in a Multi-Asset Fund and a Balanced Advantage Fund to receive monthly withdrawals. His key question: Is it better to opt for the IDCW (dividend payout or reinvestment option), and which investment route is more tax-efficient under the latest rules?

To understand the best approach, Moneycontrol consulted tax expert and CA Balwant Jain, who explained how recent changes in capital gains taxation have altered the way investors should plan their income-oriented portfolios.

Major Changes in Capital Gains Tax Rules

According to Jain, the last two years have seen significant changes in capital gains taxation, especially for mutual funds. The biggest shift is the removal of indexation benefits, which earlier helped reduce tax liability on long-term gains.

Another major change came after 23 July 2024, when the tax treatment of non-equity mutual funds was revised. Now:

Any gains from debt-oriented mutual funds are treated as short-term capital gains (STCG).
These gains are taxed according to the investor’s individual income tax slab.
The holding period—whether one year or ten years—no longer affects the tax rate for debt funds.

Due to this, the traditional tax advantage associated with long-term debt funds has completely disappeared.

How Mutual Funds Are Taxed Under the New Rules

Jain explains the classification clearly:

1. Equity Mutual Funds

A fund is considered an equity fund if 65% or more of its portfolio is invested in equity shares of listed companies.
LTCG (after 12 months): Taxed at 12.5%, with ₹1.25 lakh exemption per financial year.
STCG (before 12 months): Taxed at 20%.

2. Debt Funds

Funds investing 65% or more in debt instruments fall under this category.
All gains—irrespective of holding period—are taxed as short-term at the investor’s income tax slab.

3. Hybrid or Other Funds (neither pure equity nor pure debt)

If units are sold after 24 months, gains qualify as long-term and are taxed at 12.5%.
Selling before 24 months attracts tax as per the investor’s slab rate.

Rebate Not Applicable on LTCG Under Section 87A

Under the new income tax regime, annual income up to ₹12 lakh becomes tax-free after Section 87A rebate.
However:

The rebate does not apply on long-term capital gains (LTCG) taxed at 12.5% or 20%.
This means even if Mahesh Jain’s total income stays within ₹12 lakh, LTCG from selling Multi-Asset or Balanced Advantage Fund units will still be taxable.

But IDCW (dividend) income remains fully taxable as per slab rates—yet may be tax-free if his slab income remains within exemption limits.

Which Strategy Is Best for Mahesh?

If Mahesh chooses the old tax regime, and his total income—including capital gains—stays within ₹5 lakh, he will qualify for a full Section 87A rebate.
In that case:

There will be no tax liability on LTCG or dividend income.
Equity exposure is not mandatory from a tax perspective.
Both fund categories he prefers—Multi-Asset and Balanced Advantage—remain suitable and tax-efficient.

Since Mahesh does not expect his annual income to exceed ₹5 lakh, the old regime appears more beneficial for him, offering tax-free gains and regular income without additional liability.

Conclusion

With indexation gone and new rules changing the tax landscape for mutual funds, investors must rethink their strategy for generating regular income.

For an investor like Mahesh Jain—planning to invest ₹50 lakh—the ideal approach depends on:

Total annual income
Choice of tax regime (old vs. new)
Type of mutual fund and holding period

Tax experts suggest that for individuals with lower annual income, the old tax regime combined with hybrid funds can deliver both regular income and favourable tax treatment.