How to Correct Mismatch in Mutual Fund Redemptions in AIS

Q: What is the role of TDS in mutual fund redemptions?

TDS (Tax Deducted at Source) is applicable to mutual fund redemptions in certain cases where the capital gains exceed the prescribed threshold. If TDS is deducted, it will be reflected in your AIS and should match the TDS deduction details in your mutual fund statement. If TDS is deducted and not reported accurately, you could face discrepancies in your filing, affecting your refund. It is essential to cross-check the TDS amount in your AIS with the mutual fund house’s records to ensure accurate reporting in your ITR.

Farheen Mukadam
Aug 8
9 min read

Mutual funds have become a popular investment choice for many due to their diversification benefits and potential for higher returns. However, when it comes to filing taxes and reporting mutual fund transactions, many taxpayers face discrepancies in their Annual Information Statement (AIS). These mismatches often occur due to various factors, such as errors in recording mutual fund redemptions, incorrect reporting of capital gains, or discrepancies between the transaction details provided by mutual funds and the records maintained by the tax authorities. Let us explore the common causes of mutual fund redemption mismatches in AIS, how to correct them, and the important points you need to be aware of when reporting mutual fund transactions to ensure accurate tax filings.

What Causes Mutual Fund Redemption Mismatches in AIS?
How to Correct Mutual Fund Redemption Mismatches in AIS: Step-by-Step
Important Points Related to Mutual Fund Transactions in AIS
Conclusion
FAQs

What Causes Mutual Fund Redemption Mismatches in AIS?

There are several factors that can lead to mismatches in mutual fund redemptions reported in the AIS:

Timing Differences: Often, mutual fund companies report transactions at different times from when they actually occur. For example, a redemption may be initiated in one financial year but processed in the next, leading to discrepancies in the reporting period.
Incorrect Reporting of Capital Gains: The AIS might show incorrect capital gains, either overreporting or underreporting them. This happens when mutual fund houses don’t update the capital gains in real time, or there may be a mismatch between the purchase price and the redemption price recorded by the tax authorities.
System Errors: Sometimes, technical issues can cause data from mutual fund companies to be mismatched or not properly updated in the AIS. These errors might not be noticed until you are preparing your tax returns.
Incomplete Data: If a mutual fund redemption involves multiple units or has been done in stages, the tax authorities may fail to properly consolidate all relevant information, leading to incomplete or inaccurate reporting of the redemption in the AIS.
Reinvested Dividends: In cases where dividends are reinvested in the same mutual fund, these transactions can also cause discrepancies in the AIS if the reinvested amounts are not accurately reflected or properly accounted for by the mutual fund company.

How to Correct Mutual Fund Redemption Mismatches in AIS: Step-by-Step

Review Your AIS: Start by thoroughly reviewing your AIS to identify any mismatches or discrepancies related to mutual fund redemptions. Pay particular attention to dates, amounts, and capital gains information provided in the AIS.
Cross-Check with Transaction Records: Compare the details in your AIS with the records you have from the mutual fund house. Look at the redemption details, including the date of the transaction, the number of units redeemed, the price at which the units were sold, and the capital gains or losses.
Identify the Error: Determine the nature of the mismatch. Common errors include incorrect capital gains reporting, missing redemptions, or discrepancies in the dates. Once identified, understand the cause of the error, whether it is due to system errors, timing differences, or incomplete reporting.
Update the Records with the Mutual Fund House: If the error originates from the mutual fund company's records, reach out to them and request corrections. Many fund houses provide an online portal or customer support to help resolve these issues.
File a Revised AIS: If you find that your AIS has incorrect information that can’t be directly amended by the mutual fund house, you will need to file a revised AIS. This may involve submitting the corrected details to the Income Tax Department through the e-filing portal or seeking professional help to ensure the changes are reflected.
Reconcile Capital Gains: If the mismatch involves capital gains, calculate the actual capital gains based on your purchase price and redemption price. Ensure that you account for short-term or long-term capital gains tax, depending on the holding period of the mutual fund units.
File Accurate ITR: After resolving the discrepancies, file your income tax return (ITR) using the correct mutual fund redemption details. Be sure to include the corrected capital gains, dividends, and any adjustments that were necessary due to the mismatch.
Follow-Up on Status: Once you’ve corrected the discrepancies and filed your return, keep an eye on the status of your filing. If necessary, communicate with the Income Tax Department or the mutual fund house to confirm that the corrections have been properly reflected.

Important Points Related to Mutual Fund Transactions in AIS

Complete and Accurate Reporting: Ensure that all mutual fund transactions, including redemptions, purchases, and reinvestments, are accurately reported in your AIS. Any discrepancies can delay your tax filing process and may lead to penalties.
Understanding the Tax Treatment of Mutual Fund Transactions: Different types of mutual fund transactions are taxed differently. Short-term capital gains (for holdings less than three years) are taxed at a higher rate than long-term capital gains (for holdings exceeding three years). Dividends are taxed based on the applicable tax rate.
TDS on Mutual Fund Redemptions: In certain cases, mutual funds may deduct Tax Deducted at Source (TDS) on redemptions, especially if the gains exceed a certain threshold. Be sure to cross-check the TDS amounts shown in the AIS with the actual deductions made by the mutual fund house.
Timing and System Issues: Be aware that mutual fund houses might report transactions slightly later than when they actually occur. Always cross-check the dates and amounts to identify discrepancies due to timing differences.
Correct Reporting of Dividends: If you’ve reinvested dividends or received dividends from your mutual fund, make sure these transactions are accurately recorded in the AIS, as they impact your overall tax liabilities.

Conclusion

Mutual fund redemption mismatches in the AIS are a common issue for many taxpayers, but they can be corrected with careful review and reconciliation. By thoroughly checking the details in your AIS, cross-referencing with your mutual fund records, and following the appropriate steps for correction, you can ensure that your tax filings are accurate. Remember that mutual fund transactions should be carefully tracked to avoid mismatches and ensure that your capital gains, dividends, and TDS credits are properly reported. Timely action and accurate reporting will help you file your taxes smoothly and avoid unnecessary delays or penalties. For anyone looking for assistance in ensuring accurate tax filing and avoiding common errors like these, it is highly recommended to download theTaxBuddy mobile appfor a simplified, secure, and hassle-free experience.

FAQs

Q1: Why do mutual fund redemptions show discrepancies in the AIS?

Discrepancies in the Annual Information Statement (AIS) regarding mutual fund redemptions can arise for several reasons. One common cause is timing differences—if the transaction was recorded in the wrong assessment year. Incorrect capital gains reporting can also lead to discrepancies, especially if the mutual fund house reported gains inaccurately. System errors at the mutual fund house or in the Income Tax Department’s system can also cause mismatches. Additionally, incomplete data or reinvested dividends that weren’t properly reflected in the AIS can cause discrepancies in the reported value.

Q2: How can I correct a mutual fund redemption mismatch in my AIS?

To correct a mutual fund redemption mismatch in your AIS, first compare the details in the AIS with your own transaction records, including mutual fund statements or contract notes. If you identify an error, contact the mutual fund house for clarification or correction. You may need to request a corrected statement or file a revised AIS if the error was not resolved. In some cases, if your tax filing is already in progress, you may need to file a revised ITR to reflect the correct figures.

Q3: What is the impact of mismatched mutual fund redemptions on my tax filing?

Mismatched mutual fund redemptions can lead to incorrect reporting of capital gains, which may impact the tax liability in your Income Tax Return (ITR). If the discrepancies result in underreporting or overreporting your capital gains, the calculation of taxable income will be wrong. This may cause issues with refund processing or trigger notices from the tax department for incorrect filing. Ensuring the accuracy of mutual fund redemptions is crucial to avoid delays or penalties in your filing process.

Q4: How are mutual fund redemptions taxed?

Mutual fund redemptions are subject to capital gains tax. The taxation depends on the holding period of the mutual fund units:

Short-Term Capital Gains (STCG): If the mutual fund units are sold within three years of purchase, the gains are taxed at a higher rate (typically 15% for equity funds and according to applicable rates for debt funds).
Long-Term Capital Gains (LTCG): If the units are held for more than three years, the gains are subject to lower tax rates. For equity funds, LTCG exceeding ₹1 lakh in a financial year is taxed at 10% without indexation, and for debt funds, it is taxed at 20% with indexation.

Q5: Can I file my ITR if there’s a mismatch in my mutual fund redemptions?

Yes, you can file your ITR even if there is a mismatch in your mutual fund redemptions. However, it is crucial that you resolve the discrepancy before filing. Ensure that all capital gains from the redemptions are accurately reported. If you file before the mismatch is corrected, you may need to file a revised return once the correct details are reflected. Correcting the mismatch before filing ensures that your return is accurate and compliant.

Q6: What if my mutual fund redemption was not reported correctly in the AIS?

If your mutual fund redemption is not correctly reported in the AIS, the first step is to contact the mutual fund company and ask them to update their records. Once the issue is resolved, ensure that your AIS reflects the accurate information. If needed, file a revised AIS through the Income Tax Department portal. If discrepancies remain after filing your ITR, you may need to file a revised tax return to correct the information and avoid penalties or audits.

Q7: How do I calculate capital gains from mutual fund redemptions?

Capital gains from mutual fund redemptions are calculated by subtracting the purchase price (including additional costs, if any) from the redemption price. For long-term capital gains (LTCG), which apply to units held for more than three years, the tax rate is generally lower. For short-term capital gains (STCG), which apply to units held for less than three years, the tax rate is higher. The formula is:

Capital Gains = Redemption Price - Purchase Price (adjusted for reinvested dividends, if applicable).

For long-term gains, if you have indexation benefits, the calculation will consider the cost inflation index to adjust the purchase price for inflation.

Q8: What is the role of TDS in mutual fund redemptions?

TDS (Tax Deducted at Source) is applicable to mutual fund redemptions in certain cases where the capital gains exceed the prescribed threshold. If TDS is deducted, it will be reflected in your AIS and should match the TDS deduction details in your mutual fund statement. If TDS is deducted and not reported accurately, you could face discrepancies in your filing, affecting your refund. It is essential to cross-check the TDS amount in your AIS with the mutual fund house’s records to ensure accurate reporting in your ITR.

Q9: How do I file an ITR if I have reinvested dividends in mutual funds?

Reinvested dividends are considered part of the capital gains when you redeem the mutual fund units. These dividends should be reported in your ITR under the "Income from Other Sources" or "Capital Gains" section, depending on whether the reinvestment was in an equity or debt fund. While the reinvested amount does not attract tax immediately, it forms part of the redemption value, which will be taxed according to the holding period. Ensure that both the dividends and the capital gains are correctly included when filing your return.

Q10: Can mutual fund redemptions be corrected after filing my ITR?

Yes, if a mismatch or error in mutual fund redemptions is discovered after filing your ITR, you can file a revised return to correct the details. The revised return can be filed within the relevant assessment year. This allows you to correct discrepancies in capital gains or other mutual fund transactions and update the tax department’s records to ensure accurate tax calculations.

Q11: How can I ensure that my mutual fund transactions are accurately reported in AIS?

To ensure that your mutual fund transactions are accurately reported in the AIS, regularly monitor your AIS through the Income Tax Department portal. Cross-check the reported transactions with your own mutual fund statements. If any discrepancies are noticed, contact the mutual fund company immediately to correct the details. Keeping track of your mutual fund investments and transactions will help ensure your AIS reflects the correct information.

Q12: Should I consult a tax professional if I face issues with mutual fund redemption mismatches?

Yes, if you are unable to resolve discrepancies in your mutual fund redemptions on your own or if the issue is complex, consulting a tax professional is advisable. A tax expert can help identify the source of the issue, guide you through the correction process, and ensure that your ITR is filed correctly. Consulting a professional reduces the risk of errors, penalties, or audits, especially when handling complex financial transactions.