Income Tax Return: How to disclose your earnings from Mutual Fund investments in ITR

Mutual Fund (MF) is considered as a safer way to venture into equity markets compared to direct investments in stocks.  

This is because equity-oriented MF schemes provide a ready-made diversified portfolio managed by professional fund managers. 

Following are the tax rules on the incomes on MF investments and how to disclose such incomes:

1. Dividend - A salaried taxpayer may disclose dividend received in ITR-1 under the head Income from Other Sources.

2. Redemption - Depending on the period of holding before redemption, taxation rules are different for debt funds and equity funds.

3. Short-term Capital Gain - The holding period for short-term gains and taxation rules are different for debt and equity funds.

4. Debt Fund - Redemption made within 36 months from the date of purchase of units of debt-oriented MF schemes are considered as short-term capital gains. 

5. Equity Fund - Redemption made within 12 months from date of purchase of units of equity-oriented MF schemes are considered as short-term capital gains. Such gains are taxed at a rate of 15 per cent.. 

6. Long-term Capital Gain - RLike short-term, the holding period and taxation rules for long-term gains are also different for debt and equity funds.

How to disclose in ITR

As there is no provision in ITR-1 to disclose capital gains, after redeeming MF units – be it debt fund or equity fund and short-term gain or long-term gain – a salaried taxpayer will not be able to ITR-1, but have to disclose the gain/loss in the Capital Gain pages in the ITR-2 Form.