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Tata Capital > Blog > Check Out the Documents Required to Declare Mutual Fund ITR Declaration

Check Out the Documents Required to Declare Mutual Fund ITR Declaration

Check Out the Documents Required to Declare Mutual Fund ITR Declaration

Whether you’re a salaried or a self-employed professional, disclosing your investments is mandatory while filing the Income Tax Return (ITR). By investments, we mean fixed deposits, shares, stocks, mutual funds or anything else that earns you returns.

One of the most common investments that individuals declare on their ITR is capital gains earned from mutual funds. How? Learn in the next section.

How to show mutual fund returns while filing ITR

If you're disclosing mutual funds on your ITR for the first time, adhere to the following documentation process.

Choose the right form

Once you log into the ITR e-filing portal, you'll come across 7 forms. Out of these, select Form 1 if you're a salaried individual with zero capital gains or losses. However, if you're a salaried or HUF with capital losses or gain, click on Form 2. Even if you've sold off your mutual funds in any given year, you'll have to choose Form 2 to declare your gains or losses.

Get documents ready

Before filling out Form 2, be sure to assimilate the transactional proofs of your mutual funds. Don't worry; you don't need to upload all these statements on the portal. However, you must calculate the total earnings on redeemed funds only.

Now, if your redemption value or long-term capital gains (LTCG) from all mutual funds amount to less than Rs. 1 lakh, you don’t have to pay any tax. Any redemption amount with long-term capital gains above Rs. 1 lakh will be taxed at 10%.

If you're seeking a tax deduction in addition to declaring your mutual funds return in ITR, you can do it using Form 2. That is, if you've not already claimed a tax deduction by submitting your investment details to your employer.

Additional Read: How Mutual Funds are Taxed

Capital gains tax on different categories of mutual funds

The predominant categories of mutual funds in India include:

  • Debt funds
  • Equity funds
  • Hybrid debt-oriented funds
  • Hybrid equity-oriented funds

Within these 4 broad categories, there are multiple types of mutual funds approved by SEBI. The good news is that the funds within each category are taxed the same. Here is a break up of capital gains tax if you own mutual funds within one or all of these categories.

Debt Funds

The preferred taxation on debt mutual funds gives it an advantage over bank fixed deposit where the interest earned is taxable at tax slab.

The short-term capital gains (less than 3 years) are a part of the investor's income tax and paid as per the slabs. However, the long-term capital gains tax (3 years or more) on debt mutual funds stands at 20% (post indexation) + surcharge + cess.

Equity funds

The short-term capital gains (less than 1 year) arising from equity mutual funds are taxed at 15% + surcharge + cess. Long-term capital gains are taxed at 10%+ surcharge+ cess; however, the combined gains of Rs. 1 lakh annually are exempted. Hence, the LTCG is only applicable for gains of Rs. 1 lakh and above.

Both hybrid debt and equity mutual funds are taxed exactly as non-hybrid debt and equity mutual funds.

Additional Read: Best Mutual Funds to Invest for Retirement

The bottom line

Know that the Income Tax (IT) department is not as concerned when you begin investing in mutual funds, but it wants to be notified if you redeem them, especially at a profit.

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