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    Tax Query: Calculating capital gains from equity MFs


    Personal Finance

    LTCG over and above ₹1 lakh a year is taxable at a rate of 10 per cent

    I had been investing in an SIP mutual fund (equity) from 2008. I switched from regular growth plan to direct growth plan recently. When I downloaded the capital gains statement from the fund mutual fund site, the statement shows that the LTCG is close to ₹6 lakh, considering the grandfathering values as on 31.01.2018 and switch out / sale value. I reviewed the CG statement and understand that the capital gain is without indexation. I also understand that there is an indexation concept in income tax which will help to reduce the tax liability in case of LTCG. Can I claim indexation benefit along with grandfathering value to reduce my tax burden?

    J. Padmanabhan

    Finance Act 2018 inserted Section 112A to tax long-term capital gains (LTCG) from sale of listed equity shares and units of equity-oriented mutual funds, which were exempt earlier. Pursuant to the amendment, LTCG over and above ₹1 lakh a year is taxable at a rate of 10 per cent (plus education cess and applicable surcharge) and there is no benefit of cost indexation.

    Considering that you have earned LTCG amounting to ₹6 lakh from switch over of equity-oriented mutual funds during FY 2021-22, the taxable LTCG of ₹5 lakh (net of exemption amount – ₹1 lakh) would be taxable at the rate of 10 per cent (plus education cess and applicable surcharge).

    I am 75 years old. Under the head ‘Income from other sources’ I get interest quarterly or half yearly, by investing in non-cumulative fixed deposits of companies and banks. I include these interest payments every year and file income tax return. Now I have started investing in Post Office’s 5-year NSC VI issue, wherein interest is accrued annually but paid only at the time of maturity along with the principal amount. There is no TDS and hence the post office does not withhold taxes. So, this will not be reflected in 26AS and AIS of respective year. Is there a likelihood of queries from tax authorities on account of interest income mismatch between Form 26AS/AIS and tax returns?

    Ashok Galada

    Interest income earned from NSC could be offered to tax either on accrual basis or receipt basis depending on the method of accounting regularly adopted by an individual. In case you are adopting accrual basis of accounting, the interest income would have to be reported at the end of each financial year. In case, cash system of accounting is followed, then the entire interest income would have to be reported upon maturity of NSC.

    Considering that interest income from NSC does not get reported in Form 26AS and AIS/TIS report (available in the tax portal), reporting of the said income in your tax return may not result in any queries from the tax authorities and it can be explained with documents corroborating the same.

    The writer is Partner, Deloitte India.

    Send your queries to [email protected]

    Published on June 11, 2022

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