ITR Filing: Have You Sold Mutual Funds or Shares? Misreporting Can Trigger a Tax Notice!

When you redeem mutual fund units or sell shares, accurate reporting of your capital gains is not just best practice, it’s essential. A small mismatch between your Income Tax Return (ITR) and Annual Information Statement (AIS) or Form 26AS may invite an income tax notice.

Why Correct Reporting Matters?

The Income Tax Department has become stricter nowadays and is thoroughly checking the figures reported by taxpayers with the data provided by brokers, banks, and mutual fund registrars. Any discrepancy or mismatch in the information can result in a tax notice.

How to Report Mutual Funds and Shares Correctly

1. Choose The Right ITR Form

ITR-2: If you are a salaried individual, you can report the capital gains from mutual funds or listed shares in ITR-2

ITR‑3: ITR-3 is applicable if you're trading in shares. In such a case, it will be considered as your business income.

ITR-1 and ITR-4: If your long-term capital gains from shares or mutual funds are up to Rs 25 lakh, you can report them in ITR-1 and ITR-4 too (applicable from FY 2024-25).

2. Determine Taxable Profits Correctly

• When investors sell equity mutual funds or shares within 12 months, they face Short-Term Capital Gains (STCG) which the government taxes at 15% before July 23, 2024 and at 20% afterward.

• Tax rates for long-term equity investments (held for more than 12 months) are set at 10% for sales before July 23, 2024 and 12.5% for sales after this date when profits exceed ₹1.25 lakhs.

• “Debt funds and gold ETFs alongside other non-equity mutual funds face STCG taxes based on the slab rate while LTCG for investments held over 24 months faces a 20% tax rate with indexation benefits before July 23, 2024,” says Abhishek Soni, co-founder, Tax2Win.

3. Report all transactions

Don't skip any mutual fund or share transactions that you have made during the year. Whether profit or loss, it is necessary to report everything in your ITR. You can download consolidated capital gains statements from your broker's website to make sure you don't miss out on any transactions.

4. Don’t forget dividends and STT

Dividends of Rs 5,000 or above are taxable under ‘Income from Other Sources’/ and TDS may apply. STT paid on equity transactions must be factored into gain calculations and reduce taxable capital gain.

5. Cross‑Verify AIS and Form 26AS

Before filing, reconcile your details against the AIS and Form 26AS. These pre‑filled entries can automatically appear in your ITR; double‑check for completeness and accuracy.

Consequences Of Misreporting

A mismatch, even a date error, wrong classification of short‑term vs long‑term, missing transaction, or undeclared dividend may lead to an income tax notice.

Once a notice arrives, you must respond via the Income Tax e‑filing portal, under Section 143(1), with explanations or by submitting a revised return with corrected details.

"Selling mutual funds or shares without reporting gains correctly can lead to unnecessary notices or even scrutiny. Match your ITR entries, capital gains, dividends, STT, and transaction dates with AIS and Form 26AS. And if you receive a tax notice, respond to it immediately within the specified deadline to avoid further consequences,” suggests Soni.