Documents to keep handy when computing mutual fund taxation
The profits on sale/transfer of mutual fund are treated as capital gains and are taxed as long term capital gains or
short term capital gains depending on the holding period. If you hold your investments in equity oriented schemes
for more than 12 months, the investments become long term whereas for other schemes you have to hold the investments
for more than 36 months. The profits on long term assets are taxed as long term capital gains.
Your investment
in mutual fund are treated as short term assets if held for less than the threshold period and profits on
sale/redemption of such short term assets are taxed as short term capital gains. The same are taxed at higher rate
than the rate applicable for long term capital gains of the same category of schemes. While filing your ITR you need
to have full details of purchase and sale/redemption of your investments in mutual fund to determine its holding
period as well as the profits earned to arrive at proper tax liability. In this article I will discuss the documents
one needs to keep ready for computing capital gains on mutual fund transactions. You can have your Mutual Funds
investments either in demat form or in non demat form and the documents needed will be different accordingly.
Documents needed for units held in non-demat form
In case you have held your investments in non-demat form, the process to compute your capital gains is very simple.
You can request the mutual fund house, on their website, to send you the capital gains statement in respect of your
investments in their scheme any time you wish. The same can also be obtained from the respective registrar which
will provide you the details of the capital gains in respect of the fund houses serviced by them.
In case you
wish to cross check the numbers, you can request the fund house/registrar for detailed statements covering all the
transactions for any specified period. From the detailed statement you can find out the holding period and NAV (Net
Asset Value) of purchase and sale to compute the short term/long term capital gains. Please note that for computing
your capital gains in case all the units have not been redeemed, you have to follow First in First Out (FIFO) for
identifying the order in which the units Have been redeemed.
In case any of the scheme has been merged with
other scheme or is side pocketed, you will have to obtain the statement of the original scheme as well as the
merged/side pocketed scheme for computing the holding period and cost of the units held in the present scheme based
on the ratio in which the units on merger or side pocketing were allotted to you.
Since you are allowed to
substitute the NAV as on 31-01-2018 for your cost due to grandfathering provisions of Section 112A, you will have to
keep NAV of the scheme on that date ready for computing long term capital gains on equity oriented schemes in case
you had invested prior to 31st January 2018. You can download NAV of the all the equity schemes as on 31-01-2018
from the following link: https://www.amfiindia.com/net-asset-value/nav-history
Documents needed for units held in demat form
In case you have opted for maintaining your investments in demat form, your demat account may have two types of
mutual fund investments: ETFs units (Exchange Traded Funds) bought by you through your broker or units of the
schemes allotted by the mutual fund schemes either bought on the stock exchange platform or acquired directly from
fund house.
As far as documents needed for ETFs are concerned, you will have to take out the broker’s contract
note for purchase and sale for the ETFs sold during the year. Based on the price and date mentioned on the contract
note you can arrive at the profits and whether the same is taxable as short term or long term. For ETF of Equity
Oriented Schemes acquired prior to 31st January 2018, you will have to find out NAV of the scheme on 31-01-2018 as
discussed earlier.
In respect of the regular units maintained in demat form you will not be able to obtain the
statement of capital gains from fund house/registrar as they do not maintain such details for units held in demat as
the same are maintained on aggregate basis, you will have to take out your demat statement of the month in which the
units sold/redeemed by you were allotted as your current demat statement will not have the detailed information like
those are available in the SOA (Statement of Account) which one can obtain from the fund house/registrar anytime for
investments held in non demat form. This is very tedious process but you will have to carry out
the exercise to
compute the capital gains correctly. In case you have maintained books of account or records of date and cost of
acquisition, this will help you in identifying the units which are redeemed on FIFO basis, and you can determine the
cost of acquisition from your bank statement. For your investments in equity schemes made prior to 31-01-2018, you
need not go beyond that date and can take the cost of all such units as NAV of 31-01-2018.
Author-Balwant
Jain
(As published in IPRU Insights)
