How To Report Mutual Funds In ITR?

In the case of investors, the income from mutual funds is an essential part of filing taxes. Whatever returns you get from mutual fund earnings, such as dividends and capital gains, come under the taxable slab. However, the rules for taxation of mutual funds majorly depend on the fund type, the holding period, and the latest regulations around it. Check this blog and learn how you can report mutual funds in ITR. We will discuss everything about it in detail so that the blog can serve as a quick guide to help you.

Types of Returns from Mutual Funds

Learn about the key types of returns from mutual funds in India:

1. Dividends

Dividends can be understood as the payouts that are made by a mutual fund from its profits. Previously, these were out of the tax bracket, but since April 2020, dividends are now taxed as income from other sources at the investor’s applicable slab rate.

For example, if the dividend income exceeds ₹10,000 in a financial year, mutual fund houses deduct TDS at 10% under Section 194K. The deducted amount is reflected in Form 26AS and can be claimed as a tax credit while filing returns.

2. Capital Gains

Capital gains tax come in when you sell or redeem mutual fund units. They are classified as Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG) depending on the type of fund and the holding period.

Taxation Rules for Mutual Funds

Mutual funds are mainly divided into two types- equity-oriented and non-equity-oriented funds. Here is how taxation differs for each of these:

1. Equity-Oriented Mutual Funds

• Defined as funds with at least 65% exposure to Indian listed equities.

• STCG: Units held for less than 12 months are taxed at 20%.

• LTCG: Units held for more than 12 months are taxed at 12.5%.

• An exemption of up to ₹1.25 lakh per year is available; tax is levied only on gains above this limit.

The common examples are index funds, large-cap funds, flexi-cap funds, ELSS (tax saver funds).

1. Non-Equity Mutual Funds

These include funds with less than 65% equity exposure, such as debt funds, gold funds, or international funds.

Before April 1, 2023:

• STCG applied if units were held for less than 24 months, taxed at the individual’s slab rate.

• LTCG applied if held beyond 24 months, taxed at 12.5% (with indexation earlier available for debt funds).

After April 1, 2023:

• The Finance Act 2023 removed long-term benefits for new investments in non-equity funds.

• Any such funds purchased after this date are treated as short-term irrespective of the holding period and taxed at slab rates.

The most common examples are liquid funds, low-duration funds, gold funds.

Documents Required to Report Mutual Funds in ITR

Here is a checklist to make sure that you report mutual funds in ITR carefully without any hassles:

• PAN and Aadhaar card (compulsory for e-filing)

• Form 26AS (offers a summary of tax deducted and deposited)

• Annual Information Statement (AIS) and Taxpayer Information Summary (TIS)

• Consolidated Account Statement (CAS) from CAMS/KFintech for all mutual fund transactions

• Capital Gains Statement from mutual fund registrars or fund houses

• Dividend statements showing income received and TDS deducted

• ICICI Bank Savings Account details for refunds

• Salary slips/Form 16 (if salaried) and other income proofs

• Investment proofs for deductions (Section 80C, etc.)

How to File ITR for Mutual Fund Income?

If you have earned dividends or capital gains from mutual funds, you cannot use ITR-1 (except in limited cases). Usually, what happens:

• ITR-2 applies to salaried individuals with mutual fund income.

• ITR-3 applies if you also earn from a business or profession.

Here is a guide:

1. Login to the e-filing portal of the Income Tax Department.

2. Select e-File > Income Tax Returns > File Returns.

3. Choose the assessment year and applicable ITR form (mainly ITR-2).

4. Under Income Schedules, report:

• Dividends under “Income from Other Sources.”

• STCG and LTCG under “Schedule Capital Gains.” Provide transaction-wise details.

5. For LTCG on equity funds, fill details in Schedule 112A (scrip-wise reporting required).

6. Adjust any capital losses against gains as permitted:

• Short-term losses can be set off against both short- and long-term gains.

• Long-term losses can only be set off against long-term gains.

7. Enter TDS details (from Form 26AS) to claim credit.

8. Preview and validate the return.

9. Submit and e-verify the return using Aadhaar OTP, ICICI Bank Net Banking, or other methods.

Where to Show Mutual Fund Investments in ITR-1?

In general, the answer to how to show mutual fund investment in income tax returns is simple. Please understand that ITR-1 is not meant for taxpayers with capital gains. However, if your long-term capital gains under Section 112A are up to ₹1.25 lakh, with no carry-forward of losses, you may disclose them in ITR-1. For larger gains or more complex cases, you must use ITR-2 or ITR-3.

Conclusion

Reporting mutual funds in ITR is crucial for compliance and financial accuracy. With changes in taxation rules, especially after April 2023 for non-equity funds, investors need to be extra careful. Correctly classifying income into dividends, STCG, and LTCG, and choosing the right ITR form ensures a smooth filing experience.

By maintaining accurate records, using consolidated statements, and cross-verifying with the Income Tax Department’s data, you not only stay compliant but also maximise your chances of getting refunds without delays.