If you are a mutual fund investor, one of the important things to understand is the tax implications on your investments. Investment in mutual funds comes with various tax provisions. Thus, while investing in equity funds can carry tax saving benefits under Section 80C of the Income Tax Act along with the Long Term Capital Gains (LTCG) taxation, investing in debt funds come with indexation benefit.
However, there is often confusion on mutual fund taxation. For example, many of us think that investments in all equity mutual fund are eligible for tax deductions under Income Tax Act. While filing your ITR, it is important to know that every investment made through mutual funds do not qualify for a tax deduction. Hence, one needs to select the right scheme to invest if one is looking for tax savings.
Ajit Narasimhan, chief marketing officer, Sundaram Mutual said that the practice of many employees claiming a deduction on investments outside the Equity-Linked Savings Schemes (ELSS) category has been happening for a while now. The tax provisions under Section 80C says deduction is available under only the ELSS category of mutual funds. This category of mutual funds has a 3-year lock in which incidentally is the shortest lock-in within the available 80C options. “It is important that investors take time to understand where they are investing and its impact. Most AMCs have at least one ELSS product as part of their product offering,” he said.
While you can claim up to Rs 1,50,000 deduction for investment in ELSS scheme during the financial year, there are other tax implications on mutual funds which one should be aware of while filing their ITR.
Narasimhan said that one needs to consider these points while filing this year’s ITR:
=> Be conscious of declaring any dividend income if received from mutual fund dividend schemes.
=> Any long-term capital gains booked in equity MF will be exempt from income tax only till March 31, 2018.
=> Benefit of indexation: Benefit of indexation on their original debt fund investment means that the original investment is adjusted for the price of inflation and taxed accordingly.
=> Capital Gains of debt mutual fund arising out of sale before three years, the short-term gains are taxed according to your tax slab.
=> Remember to declare any short or long-term gains out of your liquid fund investments – especially due to rapid growth in instant redemption liquid fund products, there may be a significant number of retail investors who need to be cognizant of this point.
It is important to give a final check on your investment details while filing income tax returns online. If you face any issues related to the investment you made in FY18, you should always concern a Chartered Accountant or a financial adviser to get acknowledged about the error you are making while filing ITR.
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