How to Report Mutual Fund Redemptions and Capital Gains in ITR
- Rajesh Kumar Kar
- Nov 5
- 9 min read
Reporting mutual fund redemptions and capital gains correctly in an Income Tax Return (ITR) ensures compliance with the Indian Income Tax Act and prevents mismatch notices from the department. Each redemption—whether from equity, debt, or hybrid mutual funds—must be classified as short-term or long-term based on the holding period, and taxed accordingly. Gains are declared under Schedule CG, while dividends fall under income from other sources. With revised rules under Budget 2025 and better clarity from the CBDT, taxpayers can now file their mutual fund-related income more transparently through ITR-2 or ITR-3, depending on their income profile.
Table of Contents
Understanding Taxation on Mutual Fund Redemptions
Taxation on mutual fund redemptions depends on the type of fund, the holding period, and the nature of the gains realized. Equity mutual funds are those with at least 65% of their assets in equity shares. If such funds are sold within 12 months, the resulting short-term capital gains (STCG) are taxed at 15%. For units held for more than 12 months, long-term capital gains (LTCG) up to ₹1,00,000 are exempt, and any amount beyond this threshold is taxed at 10% without indexation benefits.
Debt mutual funds, on the other hand, are taxed differently. Gains on units held for less than 36 months are treated as STCG and added to the investor’s total income, taxed according to the applicable income slab rate. For units held beyond 36 months, LTCG are taxed at 20% with indexation benefits. Hybrid funds and gold mutual funds are taxed based on their underlying asset allocation. From FY 2024-25, new rules determine the taxability of mutual funds depending on whether they qualify as equity-oriented or debt-oriented schemes.
How to Report Mutual Fund Capital Gains in ITR
Reporting mutual fund capital gains in an Income Tax Return (ITR) requires selecting the correct form and filling in details accurately under Schedule CG. Individuals who earn capital gains but do not have business income should use ITR-2. However, if business income is also present, ITR-3 is the appropriate form.
Under Schedule CG, each mutual fund transaction must be reported with details such as purchase date, sale date, cost of acquisition, redemption amount, and resulting capital gains. The system automatically computes the taxable gain based on the data entered. Dividend income, if received during the year, should be disclosed separately under “Income from Other Sources.” This ensures complete compliance and helps avoid discrepancies between AIS/TIS data and reported income. Platforms like TaxBuddy simplify this process by automatically importing transaction data and classifying gains correctly, reducing the risk of reporting errors.
Classification of Short-Term and Long-Term Capital Gains
The classification between short-term and long-term capital gains is based on the duration for which the mutual fund units are held. For equity mutual funds, units held for up to 12 months are short-term, while those held for more than 12 months are long-term. For debt-oriented mutual funds, the short-term period extends up to 36 months, and holdings beyond this period qualify as long-term.
Correct classification ensures accurate tax computation. Short-term capital gains from equity funds are taxed at 15%, whereas those from debt funds are taxed as per the investor’s income slab. Long-term capital gains on equity funds are taxed at 10% (above ₹1 lakh), while those on debt funds attract 20% with indexation benefits. Investors can also set off and carry forward losses — short-term losses against any capital gains, and long-term losses only against long-term gains, for up to eight years.
Obtaining a Capital Gains Statement
Before filing ITR, it is essential to obtain a capital gains statement that summarizes all mutual fund transactions. This document contains detailed information on the purchase and redemption of mutual fund units, along with gains or losses incurred during the financial year. Investors can obtain this statement from Registrar and Transfer Agents (RTAs) such as CAMS or KFintech, from their Asset Management Company (AMC), or through depositories like NSDL or CDSL.
Most mutual fund platforms and banks also provide consolidated capital gains reports. These statements simplify the reporting process by listing all mutual fund schemes in a single report, making it easier to fill in Schedule CG in the ITR. Having this statement ensures accuracy in tax computation and helps prevent mismatch errors during verification.
Step-by-Step Process to File ITR for Mutual Fund Investors
Collect the capital gains statement from your RTA, AMC, or depository platform.
Identify each mutual fund transaction and classify it as short-term or long-term based on the holding period.
Select the correct ITR form — ITR-2 for individuals without business income, or ITR-3 for those with business income.
Enter the relevant details under Schedule CG, including purchase cost, redemption value, and gain or loss.
Report any dividend income under “Income from Other Sources.”
Set off or carry forward eligible capital losses, if applicable.
Review the entire return, validate details, and submit it online before the due date.
Complete e-verification using Aadhaar OTP, net banking, or electronic verification code.
This step-by-step process ensures accurate and compliant reporting of mutual fund transactions. Tools like TaxBuddy further streamline the procedure by automating data import, calculating gains, and ensuring that no section is missed while filing.
Common Errors to Avoid While Reporting Mutual Fund Gains
Many taxpayers make errors when reporting mutual fund transactions in their ITR. A common mistake is ignoring dividend income or not reporting reinvested dividends, which are taxable. Another frequent error is misclassifying capital gains — for instance, treating short-term gains as long-term or vice versa. This can lead to notices or discrepancies in the assessment stage.
Some taxpayers also forget to report capital losses or carry-forward benefits, resulting in the loss of legitimate tax advantages. Failing to reconcile mutual fund transactions with the Annual Information Statement (AIS) or capital gains reports may trigger mismatches. Ensuring accuracy in these details is crucial for smooth tax processing and refund approvals.
How TaxBuddy Simplifies Mutual Fund Reporting
TaxBuddy simplifies mutual fund reporting through its AI-driven tax filing platform, designed to handle complex income categories such as capital gains, dividends, and carry-forward losses. It allows users to automatically import capital gains data from RTAs, brokers, or investment platforms and maps it directly into the correct ITR fields.
For investors who prefer professional help, TaxBuddy offers expert-assisted plans where tax professionals review and verify every detail before submission. This ensures accuracy, compliance, and peace of mind for taxpayers dealing with multiple mutual fund transactions. The platform also helps in optimizing tax liability by identifying applicable exemptions and loss set-off opportunities.
Conclusion
Accurately reporting mutual fund redemptions and capital gains in an ITR ensures compliance and prevents unnecessary scrutiny from tax authorities. By using Schedule CG in ITR-2 or ITR-3, investors can declare both short-term and long-term gains, report dividends separately, and claim eligible loss benefits. With updated rules for FY 2024-25, reporting has become more structured and transparent. For anyone looking for assistance in tax filing, it is highly recommended you download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
Yes, TaxBuddy offers both self-filing and expert-assisted plans. Taxpayers comfortable with online filing can use the self-filing option, where the platform’s AI system guides them through each step. For those who prefer professional help, expert-assisted plans provide dedicated tax professionals who review documents, verify data, and file the return on behalf of the user. This flexibility ensures that every taxpayer, whether experienced or new, can file accurately and confidently.
Q2. Which is the best site to file ITR?
The best site to file your Income Tax Return depends on your filing needs and level of expertise. For a smooth, guided experience, platforms like TaxBuddy are highly recommended as they offer automation, tax computation, and expert review support. While the official Income Tax e-filing portal is free, it can be complex for users unfamiliar with tax terminology. TaxBuddy simplifies this process through an AI-based interface, ensuring accuracy and faster filing with fewer errors.
Q3. Where to file an income tax return?
An income tax return can be filed either through the official Income Tax Department’s e-filing portal or through authorized platforms like TaxBuddy. Filing through TaxBuddy is easier, as the system automatically pulls relevant data from your Form 16, capital gains statements, and AIS reports. It helps eliminate manual errors and ensures compliance with the latest tax laws for the assessment year. The entire filing process can be completed online without visiting any tax office.
Q4. Which ITR form is used to report mutual fund capital gains?
Mutual fund investors generally need to use ITR-2 to report capital gains if they do not have any business income. This form includes Schedule CG, where all short-term and long-term capital gains must be disclosed. However, if the taxpayer also earns income from business or profession, ITR-3 is applicable. Using the correct form ensures that the return is processed without errors or notices from the Income Tax Department.
Q5. How are short-term and long-term gains taxed for equity mutual funds?
For equity mutual funds, short-term capital gains (STCG) apply when units are redeemed within 12 months and are taxed at 15%. Long-term capital gains (LTCG) apply when units are held for more than 12 months. Under current tax laws, LTCG up to ₹1,00,000 in a financial year is exempt, while gains above this limit are taxed at 10% without the benefit of indexation. These rates remain consistent under both the old and new tax regimes.
Q6. Can capital losses from mutual funds be carried forward to future years?
Yes, capital losses from mutual fund investments can be carried forward for up to eight financial years, provided the ITR is filed within the due date. Short-term losses can be set off against both short-term and long-term capital gains, whereas long-term losses can only be set off against long-term gains. Reporting these losses properly helps reduce tax liability in subsequent years when gains are realized.
Q7. Do mutual fund dividends need to be reported separately in ITR?
Yes, dividends received from mutual fund investments must be reported under the “Income from Other Sources” section in the ITR. Since the abolition of the Dividend Distribution Tax (DDT), dividends are taxable in the hands of investors at their applicable slab rates. If the total dividend exceeds ₹5,000 in a financial year, TDS at 10% is deducted by the fund house. Declaring this income ensures proper reconciliation with the Annual Information Statement (AIS).
Q8. How to verify capital gains details before filing ITR?
Capital gains details should be verified using the consolidated capital gains statement provided by RTAs such as CAMS or KFintech, or through statements from depository platforms like NSDL and CDSL. These reports summarize all purchase and redemption transactions across mutual fund schemes. Cross-verifying these figures with the AIS (Annual Information Statement) and TIS (Taxpayer Information Summary) helps ensure accuracy before filing. Tools like TaxBuddy automatically match these values to avoid discrepancies during return processing.
Q9. Can long-term capital gains from mutual funds be offset against short-term losses?
No, long-term capital gains cannot be offset against short-term capital losses. However, the reverse is allowed—short-term capital losses can be set off against both short-term and long-term capital gains. To maximize tax efficiency, investors should report all capital losses properly in Schedule CG, ensuring they can carry forward unadjusted losses to future years for tax benefits.
Q10. Is indexation benefit available for debt mutual funds under new tax rules?
Yes, for investments made before April 1, 2023, the indexation benefit is available for long-term capital gains on debt mutual funds held for more than 36 months. Such gains are taxed at 20% after indexation. However, under the revised rules effective from FY 2023-24 onwards, any mutual fund with less than 35% equity exposure is taxed as per the investor’s slab rate, regardless of the holding period, and indexation benefits are no longer applicable for new investments.
Q11. How does the new tax regime impact mutual fund taxation for FY 2024-25?
The new tax regime does not alter the basic capital gains tax rules for mutual funds, but it affects the overall tax liability by eliminating most exemptions and deductions. While the rates for STCG and LTCG remain the same, deductions under Chapter VI-A such as Section 80C for ELSS investments are not available in the new regime. Taxpayers should compare both regimes before filing to choose the one offering the lowest tax liability.
Q12. Does TaxBuddy provide automatic capital gains computation for mutual funds?
Yes, TaxBuddy provides automatic capital gains computation for mutual funds. The platform allows users to upload their capital gains statements or link their investment accounts, after which it automatically calculates short-term and long-term gains. The AI system also identifies eligible loss set-offs, adjusts carry-forward losses, and fills the correct values in Schedule CG. This automation reduces manual work and ensures precise reporting aligned with the Income Tax Department’s standards.
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