/ ITR

Key guidance Advisory for MF Investors w.r.t. ITR Filing

I Tax

Key guidance for MF to ensure accurate ITR filings & avoid inflated capital gains reporting due to duplicate entries in the AIS:

What is the issue: duplicate mutual fund redemptions in AIS

What’s Happening in such a case: During this year’s ITR filing season, a peculiar issue has emerged in the AIS reporting of mutual fund transactions. Many taxpayers are noticing that the same mutual fund redemption/sale is being reported three times under SFT (Specified Financial Transactions) in their AIS.

Mutual Fund redemption/sale transactions are being reported multiple times in AIS. And NSDL, CAMS, and KFINTECH (all reporting entities) are independently reporting the same transaction. Which results in the triplication of a single MF sale in AIS under the Specified Financial Transactions section, inflating the capital gains figure.

Like Taxpayers using auto-imported AIS data into ITR filing utilities. & Tax professionals relying heavily on AIS for capital gain reporting without cross-verification. A CA firm must make the alert clients of this issue during MF redemption reporting. And all the document reconciliations as working papers in case of future inquiries. Moreover, educate CA junior staff or associates to review MF entries diligently this year.

Implications of Not Rectifying This : Impacted Filers are as below

  • Overstated Capital Gains → Higher tax liability, i.e., it now appears as 3x the sale amount in the AIS, creating confusion and inflated capital gains.
  • Mismatch with actual fund house statements, i.e., duplicate reporting by different RTAs (Registrar & Transfer Agents) or depositories due to overlapping data-sharing mechanisms.
  • Potential IT scrutiny or notices due to misreporting
  • Incorrect ITRs that may require future revisions

What is the next Recommended Course of Action for above problem

  1. Do Not Rely Solely on AIS for MF Sales Data: Taxpayer AIS is just an information source, not a tax computation tool.
  2. Cross-Check With Original Records: Taxpayer must reconcile AIS entries with:
    • Fund house Consolidated Account Statement (CAS)
    • Demat statements (NSDL/CDSL)
    • Broker contract notes (if applicable)
    • Form 26AS (for overall tax credit tracking)
  3. Identify & Remove Duplicates Manually: In case the same folio & transaction is reported multiple times, include only one. Then the taxpayer must maintain a working paper/documentation for justification. Taxpayer must cross-verify with actual mutual fund statements or broker reports.
  4. Use Caution With Auto-Prefill in Software: It is to be noted that many tax filing software/tools auto-pull AIS data, including duplications. And always review prefilled MF data before final submission.
  5. Report Accurate Capital Gains in Schedule CG of ITR: Taxpayer Use actual NAV, dates, and units sold from verified statements. And Use the Capital Gains Statement from the CAMS/KFIN or AMC website to support it.

In conclusion, Taxpayer can say that you should always reconcile mutual fund sales from Form 26AS + AIS + original fund house/demat statements. Do not blindly accept AIS entries, especially in case of mutual fund transactions.

HOW HUF CAN HELP SAVE TAX ON MFs

Classification of Mutual Funds for Income‑Tax Purposes (India)

Taxation depends on asset allocation not the marketing label of the fund.

Equity‑Oriented Mutual Funds

A mutual fund is classified as equity-oriented if a minimum of 65% of the corpus is invested in equity shares of Indian companies

  • Must be listed on a recognized stock exchange in India.
  • This is the decisive factor, not the scheme name.

Examples of Equity‑Oriented Funds

  • Large‑Cap Funds
  • Mid‑Cap & Small‑Cap Funds
  • Flexi‑Cap / Multi‑Cap Funds
  • ELSS (Tax‑saving funds)
  • Sectoral/thematic equity funds investing ≥65% in Indian equities

Legal Basis

  • Section 112A → Long‑term capital gains on equity
  • Section 111A → Short‑term capital gains on equity
    These sections apply only if the fund qualifies as equity-oriented.

Non‑Equity‑Oriented Mutual Funds

Any mutual fund not meeting the 65% Indian equity condition is treated as non‑equity‑oriented for tax purposes.

Funds falling under this category

  • Debt Funds : (liquid, money market, corporate bond, gilt, target maturity, etc.)
  • Gold Funds / Gold ETFs
  • International Equity Funds : (US, global, emerging markets, NASDAQ, S&P 500 funds)
  • Hybrid Funds : where equity exposure < 65%
  • Fund of Funds (FoFs) : (except those that invest ≥90% into an Indian equity fund)

Critical practical points

  • International equity funds do NOT qualify as equity-oriented even though they invest in shares  because they invest in foreign equities.
  • The 65% equity test must be satisfied throughout the year, not only at year‑end.
  • Taxation of STCG/LTCG differs completely from equity‑oriented schemes.

Why This Classification Matters

Your mutual fund’s taxation depends entirely on whether it is equity‑oriented or non‑equity‑oriented. This classification determines:

  • Holding Period : Equity LTCG: >12 months & Non‑equity LTCG: >36 months (depending on rules applicable)
  • Tax Rates
    • Equity STCG @ 15% (Sec 111A)
    • Equity LTCG @ 10% above ₹1 lakh (Sec 112A)
    • Non‑equity: Slab rate or applicable LTCG rules (indexation rules depend on amendments)
  • Indexation Benefits : Debt/gold/international funds may or may not get indexation depending on period & law amendments.
  • TDS & Reporting: Non-equity funds may trigger TDS in certain cases (resident individuals, NRI taxation, etc.).

PROVISIONS FOR ITR FILING FOR THE AY 2021-22

BIG ITR UPDATE for A.Y. 2025–26

New Annexures Mandatory for Claiming Deductions (Especially under the Old Tax Regime) To enhance transparency, ensure proper documentation, and prevent bogus deduction claims, the Income Tax Department has introduced detailed annexures in the ITRs for AY 2025–26. deatils below Mandatory Annexures—Section-wise Summary mentioned here under : 

Section 24(b) – Interest on Borrowed Capital (Home Loan): taxpayer must disclose:

  • Source of Loan (Bank / Others)

  • Name of Lender

  • Loan Account Number

  • Sanction Date

  • Total Loan Amount

  • Outstanding as on 31st March

  • Interest eligible for deduction

Section 80C – Life Insurance, PPF, ELSS, etc.

  • Policy Number or Document ID mandatory for each investment

Sections 80CCC, 80CCD(1), 80CCD(1B) – NPS / Pension Deductions

  • Must provide PRAN Number

Section 80D – Medical Insurance Premium

  • Name of Insurance Company

  • Policy Number

Section 80DD – Dependent with Disability

  • Details of the disabled dependent (Exact format may vary — typically name, relation, disability certificate details)

Section 80DDB – Specified Disease Expenditure

  • Disease must be selected from drop-down list

  • Prescribed certificate from specialist required (as per Form 10-I)

Section 80E – Interest on Education Loan

  • Source of Loan (Bank / Financial Institution)

  • Name of Lender

  • Loan Account Number

  • Sanction Date

  • Loan Amount

  • Outstanding on 31st March

  • Interest Paid

Section 80EE / 80EEA – Home Loan for First-Time Buyers / Affordable Housing

  • Same loan details as above

  • Interest claimed under respective sections

Section 80EEB – Interest on Loan for Electric Vehicle (EV)

  • Loan and interest details same as above

  • Applicable only if loan is for purchase of an electric vehicle

Section 80U – Deduction for Person with Disability (Self)

  • Personal details

  • Disability certificate details (May include % of disability, nature, and certifying authority)

Common Mistake to Avoid : 

  • Many investors believe, “If the name has equity, it will be taxed like equity.”  This is wrong. Only funds satisfying the 65% Indian equity condition get equity taxation.

Why This Matters

The taxpayer must ensure genuine deduction claims and reduce the scope for incorrect or inflated claims. The taxpayer may be matched with AIS/lender/insurer databases and prevent future scrutiny or notices for unsubstantiated claims. it is Actionable Advice for Taxpayers & Professionals

  • Start collecting documents NOW (Loan statements, insurance policies, PRAN, disability certificates, etc.)
  • Avoid last-minute rush by keeping loan sanction letters and account details ready
  • If using ITR utilities with prefill, verify annexure fields and cross-check entries with source documents
  • Don’t rely only on Form 26AS or AIS for deduction eligibility—they don’t always capture full details

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Legal Disclaimer:
The information / articles & any relies to the comments on this blog are provided purely for informational and educational purposes only & are purely based on my understanding / knowledge. They do noy constitute legal advice or legal opinions. The information / articles and any replies to the comments are intended but not promised or guaranteed to be current, complete, or up-to-date and should in no way be taken as a legal advice or an indication of future results. Therefore, i can not take any responsibility for the results or consequences of any attempt to use or adopt any of the information presented on this blog. You are advised not to act or rely on any information / articles contained without first seeking the advice of a practicing professional.