Long waiting queues, a bunch of paperwork and endless consultation with tax officers were the standard income tax filing scenes a couple of decades ago. But today, with the advancement of technology and digitisation across industries, income tax returns (ITR) filing has become an online and hassle-free process. Not only can this entire process be done from the comfort of your home, but today, multiple sources and tools are available to guide you through the process.
One such source is this article, where we give you a comprehensive checklist and guidethat can make your ITR e-filing process easy and time-saving.
Select the correct form
Once you log into the tax portalwww.incometax.gov.in, select the ITR form depending on your income source and type in the previous year. For example, a salaried individual (with no capital gains or losses from a mutual fund in any given year) should select ITR Form 1. However, you cannot choose this form if you have incurred capital gains in any year through mutual funds. If you are a salaried individual with capital gains/losses, you will go ahead with ITR2. If your source of income is business, you will have to select ITR 3.
Disclosure of dividends in mutual fund ITR
It is mandatory to disclose the dividend income earned from the mutual fund as ‘income from other sources’ in the ITR form. Moreover, it is essential to give a quarterly breakup of the dividend income while filing mutual fund ITR. Meaning disclose dividends earned from 1 April to 15th June, From 16th June to 15th September, 16th September to 15th December and 16th December to March of the respective year.
Disclosure of capital gains and losses
The Income tax department should be notified whenever you have redeemed your mutual fund investments, irrespective of capital gains or losses from that redemption. There is no tax levied on the mutual fund capital losses, but the gains are taxed, and they are categorised as the following:
Short-term capital gains
In the case of debt mutual funds, if the holding period of the investment is up to 36 months, the capital gains are considered short-term capital gains and these are taxed as per the individual’s tax slab. However, in the case of equity mutual funds, the holding period threshold is up to 12 months. These are taxed at 15% for all types of investors, irrespective of their tax slabs.
Long-term capital gains
Debt mutual funds held for more than 36 months are liable for long-term capital gains. These will be taxed at 20% after indexation and surcharge and cessfor all taxpayers.
However, w.e.f. 1 April 2023, The Finance Act 2023 has removed indexation benefit on long term
capital gain for the investment made in specified mutual fund schemes. In such a case, any capital gains would be considered as short term in nature and taxed as per applicable tax rate slab of the investor irrespective of the holding period. This provision is applicable only for any investments made on or after 1 April 2023.
“Specified Mutual Fund” means a Mutual Fund scheme which does not invest more than 35% in equity shares of domestic companies.
In the case of equity funds, an investment held for more than 12 monthsattracts long-term capital gains tax when the units are redeemed. The capital gains up to Rs. 1 lakh p.a. are exempt from being taxed. However, any gains exceeding this limit will be taxed at a flat rate of 10% without any indexation benefit.
Set-off losses
Interestingly, you can also set off and carry forward capital losses from mutual fund investment against capital gains. This can help in reducing your tax obligation. For example, if your capital gain is Rs. 50,000 and your capital loss for the same year is Rs.40,000, then by reducing the loss from the gain, your net capital gain is only Rs.10,000 (Rs.50,000 – Rs.40,000). So instead of paying tax on Rs. 50,000, you end up paying for just Rs. 10,000. Long-term capital loss cannot be set off against any income other than income from long-term capital gain. However, short-term capital loss can be set off against long-term or short-term capital gain.
Now that you have a complete list of things to remember while filing ITR, ensure to file the ITR before the due date. After all, timely and duly tax filing is a good practice for maintaining financial health and avoiding regulatory consequences of not filing ITR within due date.
Diclaimer:
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their affiliates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document.
Mutual Fund Investments are subject to market risks, read all the scheme related documents carefully.
