How to Read Your Mutual Fund Tax Statement

Every year, around March, your inbox gets flooded with emails from mutual fund houses. Most of us treat these like those wedding invitations from distant relatives we know we should open them, but we keep postponing. And then comes July, when you’re filing your income tax return and scrambling to make sense of all those PDFs. Sound familiar?

Your mutual fund tax statement is not as confusing as it looks. Once you understand its structure, reading it becomes as simple as checking your bank passbook. Let me walk you through the key sections and what they mean for your tax filing.

Why Should You Care About This Statement?

When you invest in mutual funds, you don’t just buy and forget. The taxman wants his share whenever you make money whether through selling your units at a profit or receiving dividends. The mutual fund tax statement is essentially a report card that tells you exactly how much you earned and what portion is taxable.

Getting this right matters because the Income Tax Department already has this information. If you under-report or miss declaring your mutual fund gains, you might receive a notice. And nobody wants that kind of surprise in their inbox.

The Key Documents You’ll Receive

Mutual fund houses typically send you two main documents during tax season:

1. Capital Gains Statement

This is probably the most useful document for your ITR filing. It lists every redemption (sale) you made during the financial year. For each transaction, you’ll see:

• The scheme name
• Date of purchase and date of sale
• Number of units sold
• Purchase price (called “cost of acquisition”)
• Sale price
• The gain or loss you made
• Whether it’s a short-term or long-term gain

The short-term versus long-term distinction is based on how long you held the units. For equity funds (where at least 65% of the portfolio is in stocks), holdings beyond 12 months qualify as long-term. For debt funds, this threshold is 24 months. This matters because long-term gains are taxed at lower rates than short-term gains.

2. Dividend/IDCW Statement

If you’ve chosen the IDCW option (Income Distribution cum Capital Withdrawal, which was earlier called the dividend option), this statement shows all the payouts you received. Since April 2020, dividends are added to your income and taxed at your slab rate. So if you’re in the 30% tax bracket, you’ll pay 30% tax on these dividends. The mutual fund house also deducts TDS (Tax Deducted at Source) at 10% if your dividend income from a single fund house exceeds Rs 5,000 in a year. You’ll see this TDS amount in the statement, and you can claim credit for it while filing your return.

3. Consolidated Account Statement (CAS)

This comes from CAMS or KFintech (the two main registrars) and gives you a combined view of all your mutual fund holdings across different fund houses. While it’s great for tracking your portfolio, the CAS by itself may not have all the tax details you need. You’ll still need the individual capital gains statements from each fund house.

How to Read the Capital Gains Section

Let’s break down what each column means with a practical example.

Say you invested Rs 1,00,000 in an equity fund in January 2023 and sold it in February 2024 for Rs 1,20,000. Your capital gains statement will show:

• Cost of Acquisition: Rs 1,00,000
• Sale Value: Rs 1,20,000
• Capital Gain: Rs 20,000
• Type: Long-term (because you held it for more than 12 months)

Now, for equity funds, long-term capital gains (LTCG) up to Rs 1.25 lakh in a financial year are tax-free. Gains above this limit are taxed at 12.5%. So if your total LTCG across all equity funds is Rs 1,50,000, you pay tax only on Rs 25,000 (that’s Rs 1,50,000 minus Rs 1,25,000).

For short-term capital gains (STCG) on equity funds, the tax rate is a flat 20%.

Debt funds follow different rules. After the changes in the 2023 budget, gains from debt funds (held for any period) are added to your income and taxed at your slab rate. There’s no indexation benefit anymore for debt funds purchased after April 2023.

Understanding the Grandfathering Clause

If you’ve been investing in equity funds since before January 31, 2018, you’ll notice something called “grandfathering” in your statement. The government introduced LTCG tax on equity funds in 2018, but they didn’t want to penalise investors for gains made before the rule change. So any gains up to January 31, 2018, are exempt.

Your capital gains statement will show the “fair market value” as of January 31, 2018, and calculate your taxable gain only from that date. This is done automatically by the fund house, so you don’t need to calculate it yourself. But it helps to know why your cost of acquisition might look different from what you actually invested.

Switch Transactions Are Also Taxable

Many investors don’t realise this when you switch from one scheme to another within the same fund house, it’s treated as a sale and purchase. So if you switched from a large-cap fund to a flexi-cap fund, the switch is a redemption event. Any gain from that switch is taxable in the year you made the switch. Your capital gains statement will capture this, so don’t be surprised if you see transactions you don’t remember actively selling.

Practical Steps for Filing Your ITR

Here’s what you should do with these statements:

1. Download all capital gains statements from each fund house’s website. Most fund houses have a dedicated “tax statement” or “capital gains report” section in their investor portal.
2. Add up your total STCG and LTCG separately for equity and debt funds. You’ll need to report these under different schedules in your ITR.
3. Check your Form 26AS and AIS (Annual Information Statement) on the income tax portal. The mutual fund transactions should match. If there’s a mismatch, investigate before filing.
4. Claim TDS credit if tax was deducted on your dividends. The TDS amount will reflect in your Form 26AS.
5. If you have losses, don’t ignore them. Capital losses can be carried forward for up to 8 years and set off against future gains. But you must file your return on time to claim this benefit.

To Sum Up

Your mutual fund tax statement is essentially a ready reckoner for your ITR. The fund houses have already done the heavy lifting calculating your gains, applying grandfathering rules, and categorising everything as short-term or long-term. Your job is to simply transfer this information correctly into your tax return.

Make it a habit to download these statements as soon as they’re available in March or April. Keep them organised in a folder so you’re not hunting for them at the last minute. And if your mutual fund portfolio is sizeable, consider using a tax-filing software or a chartered accountant who can import these statements directly. A few hours of preparation now can save you from notices and corrections later.