Assessing Tax On MF Withdrawals
If you have exited MFs during the year, you would have made capital gains or losses.
You must report these in your ITR filings, even if there are no tax liabilities. Concealing or misreporting can invite attention from the tax authorities.
Capital gains arise when you sell a fund at a higher NAV than what you invested at.
No tax is deducted at source by the mutual funds for capital gains and the investor is therefore liable to pay taxes, if any.
Long Term & Short Term Capital Gains
For shares listed on stock exchanges and equity-oriented MFs, short-term is a period of less than 12 months.
Long-term for exchange-listed equity assets, including equity funds, means you have remained invested for over 12 months.
If the investment is sold within three years, STCG is chargeable at your tax slab rate (31.2% for those in the highest tax bracket).
LTCG up to Rs 1 lakh in a financial year is exempt from taxes while a grandfathering clause ensures that tax is prospective in nature.
In case of debt funds, LTCG at the rate of 20.8% is applicable, if units are sold after three years of buying.
A capital gain can be set-off against a capital loss made during the year.
STCG loss can be set-off against both LTCG and STCG. But LTCG loss can be set-off only against LTCG.
You can set-off gains of a debt fund against equity fund loss or vice-versa.
Filing Your Taxes
If you earn a salary and have a capital gain or loss, you need to choose ITR-2 form.
In part B of the form containing total income, there is a section for capital gains, where you need to report the net STCG and LTCG for debt and equity schemes.
You need to report capital gains in your tax filings if you have sold funds during the year.
By availing set-offs and carry-forward of losses, you can reduce tax liabilities.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.