For many investors today, mutual funds sit at the centre of long-term investment plans, through SIPs as well as lump-sum allocations. But when tax season arrives, many investors freeze, not because returns are low, but because reporting feels unclear and messy.
ITR filing of mutual fund investments decides the tax outcome for gains, losses, and income. By understanding mutual fund tax filing, investors can avoid notices, while beginners can plan SIPs, redemptions, and switches with taxes in mind.
This blog breaks down where and how to show mutual fund investments in ITR, covering capital gains, dividends, ITR forms, and common mistakes, step by step.
What is ITR filing for Mutual fund investment?
Income Tax Return (ITR) filing is how taxpayers report their financial details to the tax department for a year. It is used to report earnings from salary, business, interest, and other income sources, such as capital gains and losses from mutual fund investments.
For mutual fund investors, ITR filing becomes relevant when their investments generate income or suffer losses through redemptions and dividend income received during the year. These details are reported in specific schedules so gains are taxed correctly and the investment record stays compliant.
Do You Need to Report Mutual Fund Investments in ITR?
Yes, taxable returns from mutual fund investments need to be reported in the Income Tax Return. This includes capital gains from redemptions or switches and any dividends received during the financial year.
However, simply holding the units or investing through SIPs without any taxable events doesn’t need reporting. But once there’s income or a loss, showing it correctly ensures compliance and helps in avoiding notices or penalties from the tax department.
Types of Mutual Fund Income for ITR Filing
Check how income from equity and debt mutual funds is reported while ITR filing!
Equity Mutual Funds: How to Report in ITR
Equity mutual funds allocate a minimum of 65% of their portfolio to Indian equity shares.
| Features | Short-term Capital Gains | Long-term Capital Gains |
| Investment period | Less than 12 months | 12 months or more |
| Tax rate | 20% | 12.5% on gains over ₹1.25 lakh in a financial year |
| Reporting schedule | Schedule CG in ITR forms | Schedule 112A in ITR forms |
| TDS on Dividend | – | 10% TDS deducted if the dividend exceeds ₹5,000 in a financial year |
Debt Mutual Funds: ITR Reporting Rules
Debt mutual funds invest less than 65% of their capital into equity shares.Â
| Features | Taxation Rules |
| Tax rate | As per tax slabs, regardless of the holding period |
| Reporting schedule | Schedule CG in ITR forms |
How to Show Capital Gains from Mutual Funds
See how investors show capital gains and dividend income from mutual funds!
Schedule CG: Step-by-Step Explanation
| Step 1: Log-in to e-filing portal | Sign in using PAN and password on the Income Tax e-Filing website |
| Step 2: Start ITR Filing | Open the Income Tax Return filing option under the e-File menu |
| Step 3: Select Filing Basics | Choose Assessment Year, select Online mode, and click Start Filing |
| Step 4: Choose Assessee & ITR | Select Individual/HUF, choose the applicable ITR form – Schedule CG |
| Step 5: Enter MF Capital Gains | Enter mutual fund redemption or switch details under the correct equity or debt section |
| Step 6: Review Calculations | Review the capital gains or losses calculated by the system |
| Step 7: Preview & Validate | Match the figures with AIS or capital gains statement |
| Step 8: Verify & Submit | Complete e-verification to submit the return |
Dividend Income from Mutual Funds in ITR
Dividend income from mutual funds is taxable and should be shown under Income from Other Sources in the ITR. Schedule Exempt Income (EI) is used only to disclose dividend income if it is exempt under the law for a specific financial year, even though it is not included in total income.
Switch, SIP & Redemption: Special Reporting Cases
Switch, SIP, and redemption of mutual funds are all considered taxable events upon the realization of profit and must be reported while filing Income Tax Return (ITR) under the ‘Capital Gains’ section using ITR Form 2 or 3, depending on the other income sources.
| Transaction Type | Tax Implication | How to report? |
| Switch | Switching mutual fund schemes is taxed as a sale and reinvestment, with capital gains determined by how long the original units were held. | It is reported as capital gains from redemption in Schedule CG or Schedule 112A |
| Systematic Investment Plan (SIP) | For SIP investments, tax liability arises only when the units are redeemed or sold. | Here, the FIFO method is used, as each instalment is reported separately on redemption |
| Redemption | In case of redemption of funds, any profit or loss is treated as a capital gain/loss and is taxable based on units sold. | Here capital gains is reported in Schedule CG |
Using AIS & Form 26AS to Cross-Verify MF Data
Before submitting the ITR, it’s important to cross-verify the mutual fund transactions with AIS and Form 26AS, which reflects the data reported to the tax department by fund houses and registrars.
The Annual Information Statement (AIS) captures information on mutual fund redemptions, dividends, and capital gains. It helps in confirming whether all taxable transactions have been captured and whether amounts match the investors’ own records.
Form 26AS reflects tax deducted at source, such as TDS on dividends or other income. While it may not show every transaction, it acts as a supporting check for the taxes already paid.
Matching the ITR entries with AIS and Form 26AS helps the investors in reducing errors, avoiding mismatches, and lowering the risk of notices after filing.
Common Mistakes While Showing MF in ITR
- Reporting Investments Instead of Gains: Reporting the investment amount instead of only reporting capital gains or losses
- Ignoring Capital Losses: Missing capital losses and losing the benefit of set-off or carry forward
- Missing Tax on Fund Switches: Ignoring switches between mutual funds, which are taxable events.
- Not Verifying with AIS or Form 26AS: Not matching capital gains with AIS or Form 26AS data.
Final Takeaway
Showing mutual fund investments in ITR is less about what is invested and more about what has been earned or lost. Capital gains from redemptions, switches, and SIP withdrawals must be reported under the correct schedules, while dividend income needs separate disclosure. Additionally, using AIS and Form 26AS to cross-check data helps in avoiding mismatches, notices, and filing errors, making mutual fund tax filing cleaner and stress-free.
FAQ‘s
Mutual fund investments are shown in the ITR only when they generate taxable income. Capital gains from redemptions or switches are reported under Schedule CG or Schedule 112A, while dividend income is reported under the applicable income schedule.
No. If the investor has invested through SIPs or lump sums and has not redeemed units or received dividends, then there is no need to report mutual fund investments in the ITR for that financial year.
ITR-2 or ITR-3 is generally used for reporting mutual fund capital gains, depending on whether the investor has business income.
Mutual fund dividends are taxable as per the applicable tax laws and must be reported under Income from Other Sources. Schedule Exempt Income (EI) is used only to disclose dividend income if it is exempt under the law for a specific financial year, even though it is not included in total income.
SIP investments themselves are not shown in the ITR. Only when the SIP units are redeemed do they become reportable. Each SIP instalment is treated separately using the FIFO method to calculate capital gains or losses.
Capital gains from mutual funds are reported under Schedule CG in the ITR form. Long-term capital gains from equity mutual funds exceeding the exemption limit are reported separately under Schedule 112A.
