Did you know there are 23.45 crore mutual fund folios in India as of March 31st 2025? This still constitutes only about 3% of the total population that invests in mutual funds, however, this number is still quite significant. While mutual fund investing in itself has been simplified a lot over the years, when it comes to filing the mutual fund income in ITR, it still gives jitters to many investors, especially the novice ones. Are you among them too? Check out this blog to know all about declaring mutual fund income in ITR and its related details.
Mutual fund investments are known to have diverse options for investors to meet their specific investment goals and risk-return expectations. The income earned from mutual funds, like any other income, is taxable under the Income Tax Act, 2025. Income from mutual funds is broadly classified under two main categories, as explained below.
Dividend income is money distributed by the mutual fund from the profits it makes. Mutual funds collect money from many investors and invest it in shares of companies or other assets. If these companies earn profits, they may give part of their earnings as dividends. The mutual fund then passes on some of this profit to investors, which is known as dividend payout and is received directly in the investor’s bank account. This income is taxable in the hands of the investors at the applicable slab rates after the change in the dividend tax in 2020.
The capital gains from mutual funds are the profits earned from the sale of mutual fund units. Capital gains have been the focal point of discussion in the previous budget. With the drastic changes in the short-term and long-term capital gains taxes, the investor community was quite shaken by the changes made. The details of the capital gains taxes are tabled below.
The Income Tax Act provides specific guidelines for the ITR to be used based on the type of income and the taxpayer. The type of ITR to be filed for declaring mutual fund income is,
ITR-2 is to be used to declare income from capital gains (for example, from selling mutual fund units) and when there is no income from business or profession. This applies to most salaried people or retirees who invest in mutual funds.
If taxpayers also have business income (like from freelancing or running a small business), then they need to file ITR-3.
Key Points to remember,
Dividend income from mutual funds must be reported under the head ‘Income from Other Sources’.
Capital gains (short-term or long-term) from mutual funds must be reported under ‘Capital Gains’, with details of purchase and sale.
Along with the correct ITR to be used for declaring the mutual fund income, taxpayers also have to furnish a few documents to support their claim. These documents include,
PAN Card and Aadhaar Card
Form 26AS,
showing TDS on the dividend income, if any.
AIS (Annual Information Statement), which gives detailed information about mutual fund transactions and income (dividends, redemptions, etc.).
Capital gains statement provided by the mutual fund companies or the Registrars like CAMS, KFintech, or Karvy
Bank account statements showing credit for dividends and redemption amounts
The steps to file the ITR reporting mutual fund income are highlighted below.
Choose the Right ITR Form
Use ITR-2 if you have capital gains and no business income.
Use ITR-3 if you have both capital gains and business/professional income.
Collect Required Documents
Get your capital gains statement from CAMS/KFintech or mutual fund websites.
Check Form 26AS and AIS for dividend and tax details.
Have your PAN, Aadhaar, and bank details ready.
Log In to the Income Tax Portal
Visit https://www.incometax.gov.in
Log in using your PAN and password.
Start Filing Your Return
Choose ‘File Income Tax Return’, select the relevant assessment year and the type of ITR (ITR-2 or ITR-3).
Report Dividend Income
Go to the section ‘Income from Other Sources’.
Enter the total dividend received from mutual funds.
Report Capital Gains from Mutual Funds
Go to the ‘Capital Gains’ schedule.
Report short-term (held for ≤ 12 months) and long-term (held > 12 months) gains separately.
Enter key details
Purchase and sale date
Cost and sale value
Type of fund (equity or debt)
Verify TDS if any,
If any TDS was deducted on dividends, verify it in Form 26AS or AIS.
Report it under the TDS schedules in your ITR.
Fill in Other Details and Verify Deductions
Complete other sections like income from salary or other sources.
Enter deductions under Chapter VI-A (like 80C, 80D, etc.).
Preview and submit the ITR after reviewing all entries carefully, and click ‘Submit’ once confirmed.
E-Verify the Return
After submitting, you must e-verify the return within 30 days.
You can use Aadhaar OTP, net banking, or EVC.
Declaring mutual fund income can seem to be a daunting task. However, it has been simplified over the years. The key to successful filing of any ITR is to maintain the correct documents and disclose all incomes accurately. Taxpayers can also reach professional experts to further simplify this process if required, to ensure that there are no errors or discrepancies that may warrant the filing of revised returns.
We have explored a very important part of mutual fund investing in this article. Let us know your thoughts on this topic or if you need further information on the same.
Till then, Happy Reading!
Read More: How To Complain About Mutual Fund?
Marisha Bhatt is a financial content writer @TrueData.
She writes with the sole aim of simplifying complex financial concepts and jargon while attempting to clarify technical and fundamental analysis concepts of the stock markets. The ultimate goal is to spread vital knowledge and benefit the maximum audience. Her Chartered Accountant background acts as the knowledge base to help clarify crucial concepts and create a sound investment portfolio.
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