Tax Reporting: Not sure how to disclose capital gains on debt funds? Know where to put it

Every time you sell or redeem shares of equity or debt-oriented mutual funds (MFs), it results in a capital gain or loss, whether in the short or long term. The short-term capital gains (STCG) holding period for debt funds can be up to 36 months and for equity funds up to 12 months.

STCG on debt funds is added to an investor’s taxable income and is taxed according to the investor’s tax plate, while that on equity funds is taxed at a rate of 15%. On the other hand, long-term capital gains on debt funds are taxed at a rate of 20% after indexation, while those on equity funds are taxed at 10%, once the amount of gain exceeds Rs 1 lakh in a financial year.

While the space to disclose earnings from equity funds is clearly mentioned in the ITR forms (ITR-2 and ITR-3), without clear indication, there is confusion among taxpayers as to which option to select to disclose gains from the sale of debt-focused MFs. units.

No clear demarcation for capital gains on debt

“It is important that every taxpayer files their tax return correctly in order to avoid any potential investigation by the tax authorities in the future. With respect to short-term gains from debt-oriented mutual funds, taxpayers may consider selecting the “From the sale of assets other than all items listed above” option in the table of capital gains,” said Dr. Suresh Surana, Founder, RSM India.

“The reason for this is that it is obvious that debt-focused mutual funds cannot be classified as land or building and this option is ruled out. In addition, the same cannot be classified as shares of equity-oriented mutual funds (because equity-oriented funds invest 65% of their portfolio in equity investments) and to be treated as equity gains. short-term capital, they have a threshold holding period of 12 months whereas debt oriented funds have a threshold holding period of 36 months. Also, the same cannot be classified in any other available category such as bonds or debentures, equity shares, GDR, etc. “, he added.

“Thus, the most appropriate option with respect to the disclosure of short-term gains from debt-focused mutual funds appears to be in the residual category of ‘From the sale of assets other than all of the listed items. above,'” Dr. Surana added. .

Even after entering the page to put capital gains amounts, the confusions would still persist as there is no mention of debt funds or debt focused mutual funds in this page as well.

Indeed, in the page intended to add “sale of assets other than all the items listed above”, the options offered are as follows:

  • Amount of consideration received/receivable for unlisted shares
  • Amount of consideration relating to assets other than unlisted shares

Again, it must be assumed that the figures to be entered for the option “assets other than unlisted shares” as debt funds are not unlisted shares.

Instead of leaving taxpayers confused and forcing them to make decisions based on assumptions, the CBDT should consider a clear demarcation for debt-focused MF schemes in the capital gains page to make things better.

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