The July 31 ITR deadline has significant implications for investors with multi-asset fund portfolios, as reported by ET Wealth Online. According to Chartered Accountant Suresh Surana, the tax treatment depends on the fund's underlying asset allocation rather than its name. ITR-1 cannot be used where the taxpayer has short-term capital gains, long-term capital gains under Section 112A exceeding ₹1.25 lakh, brought forward or carry forward losses, business income, or total income exceeding ₹50 lakh. The income tax department's ITR-2 utility provides Schedule Capital Gains for reporting short-term and long-term capital gains/losses, while ITR-3 is applicable to individuals and HUFs with income from various sources where they are not eligible for ITR-1, ITR-2, or ITR-4. For FY 2025-26, taxpayers can file belated returns until December 31, 2026, with late filing incurring fees of ₹5,000 or ₹1,000 based on income.
As reported by ET Wealth Online, all switches and systematic withdrawal plans (SWPs) in active fund portfolios are taxable events. These transactions generate capital gains or losses that must be reported in the investor's tax return. The tax treatment depends on the holding period and the type of fund involved, with different tax slabs applying based on the investor's income level. Short-term capital gains are taxed at 20% under Section 111A for equity funds, while long-term capital gains are taxed at 12.5% under Section 112A provided gains exceed the threshold limit of ₹1.25 lakh in a financial year. For debt funds, long-term capital gains are taxed at 12.5% without indexation under Section 112. Multi-asset funds are classified as equity-oriented, debt-oriented, or specified mutual funds based on their asset composition, with specified mutual funds treating all gains as short-term capital gains.
According to ET Wealth Online, the taxation of multi-asset mutual funds is determined by their underlying asset allocation rather than their name. Multi-asset funds may qualify as equity-oriented, debt-oriented, or specified mutual funds under the Income-tax Act, 1961, depending on their asset composition. A multi-asset fund is considered a specified mutual fund under Section 50AA if it invests more than 65% of its total proceeds in debt and money market instruments, or if it invests 65% or more of its total proceeds in units of a fund that qualifies as a specified mutual fund. The period of holding is from the date of acquisition to the sale date, with units of listed equity mutual funds held for more than 12 months qualifying as long-term capital gains, while units sold within 24 months are categorized as short-term. For equity-oriented funds, specific tax rates and holding periods apply, while debt-oriented funds are taxed at investor slab rates after 24 months.
As reported by ET Wealth Online, investors must maintain detailed records of all multi-asset fund transactions throughout the financial year, including the fund's asset allocation, date of purchase, date of redemption, sale/redemption value, cost of acquisition, expenses on transfer, STT applicability, and the capital gains statement issued by the mutual fund. The tax implications extend beyond simple capital gains calculations, as the timing and frequency of fund switches and SWPs can significantly impact the overall tax liability. Before filing an income tax return, taxpayers should verify all these parameters to ensure proper tax compliance and accurate reporting of capital gains under the correct tax slabs and schedules. For FY 2025-26, taxpayers can e-verify their returns using multiple methods including Aadhaar OTP, Electronic Verification Code (EVC), net banking, and Demat accounts.
