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Tax Matters

Do I need to mention my mutual funds gains while filing my income tax returns? Also, if I redeem a tax saving bond before lock-in period, what's the implication?
-Praveen Rana

Do I need to mention my mutual funds gains while filing my income tax returns? Also, if I redeem a tax saving bond before lock-in period, what's the implication?
—Praveen Rana


Mutual fund gains, wherever they are subject to taxation are required to be mentioned in the income tax returns. Under the changes brought about by the current with effect from 1st October, the capital gains from equity mutual funds would be subject to 10 per cent short term capital gains tax and zero long term capital gains tax. Thus investors would have to make a mention of any short-term capital gains that they may have made.

Long-term capital gains though, being tax-free, are not required to be mentioned if they have been realised after October 1, 2004. This is because the new capital gains regime came into effect from October 1, 2004.

The investor will have to make a mention of the long-term capital gains if they have been realised prior to 1st October 2004. The reason is that prior to 1st October 2004, the old capital gains structure was in place and long-term capital gains was under the tax ambit at the time. Debt mutual funds though are subject to both long-term and short-term capital gains at present. Therefore, an investor would need to make a mention of both long-term and short-term gains for a debt mutual fund.

Tax planning bonds carry a lock in period of three years for investors to avail of the tax benefit. If these are sold or otherwise transferred within the period of three years from the date of acquisition of bonds, the tax rebate availed of earlier would become tax payable in the year of sale or transfer. Therefore, you would have to surrender the tax rebate that you may have got if you sell the bonds before the lock-in period.

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