Hello Readers!
If you have been a mutual fund investor, during the year, you must have made money loss or gain, which is a must for you to report in your ITR (Income Tax Return) filings. You have to report it correctly even if there is no tax liability. Misreporting or giving wrong information might attract the attention of Tax authorities towards you.
Well, in Mutual fund tax to be paid on returns is calculated based on the Capital Fund, on the kind of fund you have invested. There are basically two types of Capital Gain, LTCG (Long-term Capital Gain) and STCG (Short—term Capital Gain)
Both LTCG and STCG are defined with different investment duration in both Equity and Debt mutual fund. Let us know about these in brief.
WHAT IS CAPITAL GAIN?
Capital Gain is generally defined as the return that you get when you sell a fund at a higher NAV than what you invested at. It is of two types:
Short-Term Capital Gains Tax (STCG) – In Equity mutual fund, the capital gain obtained within a holding period of fewer than 12 months is considered as STCG. Whereas, for debt funds, STCG is considered if the holding period is less than 36 months.
Long-Term Capital Gains Tax (LTCG) – In the case of Equity mutual fund, a holding period of more than 12 months is considered as LTCG. Whereas, in debt funds holding a period of more than 36 months is takes an LTCG.
If an investor sells his equity mutual fund within a year of investment, he is liable for short-term capital gains (STCG) taxes @ 15.6% (15% + 4% cess). If he holds it for more than a year, long-term capital gains (LTCG) @ 10.4% is applicable.
LONG AND SHORT
As per the Income Tax Act and SEBI regulations, LTCG up to Rs 1 lakh in a financial year is exempt from taxes. While it is also true that a grandfathering clause ensures that tax is prospective in nature. Higher of the sales proceeds or the fair market value (NAV as on Jan 31, 2018) is considered as the cost of acquisition for taxation purposes.
Let’s say you invested Rs 1 lakh in an equity fund in 2015-16 at a NAV of Rs 100 per unit. And now, it’s NAV has gone up to Rs 140, while its NAV on Jan 31, 2018, was Rs 120. For the purpose of LTCG, higher of Rs 100 and Rs 120 is taken as cost of acquisition per unit. Accordingly, LTCG works out to Rs 20,000 ((140-120) *1000 units). If there are no other gains, it will be fully exempt from taxes for the year.
In Debt Mutual Funds, LTCG at the rate of 20.8 percent is applicable, if units are sold after three years of investment, with the benefit of indexation. To calculate the indexation benefit for your debt schemes, you need to multiply its cost of acquisition by the ratio of index values existing during the year of sale and purchase respectively.
In case if the Debt funds are sold within three years of investment then it is liable for an STCG, which is chargeable at your tax slab rate.
SET-OFFS
Well, you can set-off your capital gains, that is you can nullify your capital loss with your capital gain, made during a year. You can set-off gains of a debt fund against that of equity fund loss or vice-versa.
There are different rules of set-off for both Long-term capital gains and short-term capital gains. A short-term capital loss can be set-off against both LTCG and STCG. However, a long-term capital loss can be set-off only against LTCG.
HOW TO REPORT OR FILE YOUR CAPITAL GAINS?
If you are a salaried person and you have also made either gain or loss from your investment, then you need to file ITR-2 form. In section B of the form, containing total income, there is a separate head for capital gains, where you need to separately report the net STCG as well as LTCG for debt and equity schemes.
To calculate it, you will need the following details:
1. Statement of redemptions for FY 2019-20 of the concerned funds. This will list all your mutual fund redemptions, date of sale, date of purchase, the price received, the price paid and so on
2. ISIN (12-dight digital security code) of the fund
In order to get your mutual fund investment statements, you can log in to the mutual fund account of various fund houses, with the help of your portfolio number and can obtain these statements.
Under the schedule 112A of the form, you need to key-in the following details of each of the schemes sold.
1. ISIN code
2. Name of the scheme
3. No. of units
4. Sale price per unit
5. Sale value
6. Cost of acquisition (also without indexation)
7. Fair market value per unit and overall value (NAV as on 31st Jan 2018)
8. Expenditure incurred in connection with the transfer
Most of the details mentioned above can be obtained from your mutual fund statement only.
You must report your capital gains in your tax filings if you have sold your funds during the year. By filing them you can avail the setoffs, this will help you reduce your tax liabilities for the year.
For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).