If you have been investing in mutual funds jointly with your parents, spouse or children, take a quick look at your Form 26 AS. This is your annual income tax statement aka Form 26 AS.
New Delhi-based Nilima Gor had a joint bank account with her husband and all the investments into mutual funds were routed through this joint account. Even though she is a home maker she has received a notice to file an income tax return due to these joint holdings.
This is because aggregate value of all transactions above Rs 10 lakh annually need to be reported to the income tax department by mutual fund houses. The amount (Rs 11 lakh in the case of the Gors) has to be attributed to all the persons involved in the transaction.
The problem is that this amount gets reflected for both Nilima and her husband, separately. In other words, the income tax department believes that Nilima herself has invested Rs 11 lakh and her husband has invested, separately, Rs 11 lakh. The reality is quite different; the total investment by both together is Rs 11 lakh.
“When the transaction is in the name of more than one person, the reporting guidelines by CBDT require that the amount should reflect in both the holders’ name. Individual investors do face tax queries due to this reporting. AMFI (The Association of Mutual Funds of India; the mutual fund industry’s trade body) has raised the matter with CBDT. But the dual reporting norms have not been altered by CBDT yet,” says a mutual fund official requesting anonymity.
Clarification from Authorities
Even though the issue has been taken up by the Association of Mutual Funds in India (AMFI) with the Central Board of Direct Taxes, no resolution has been offered under the Budget 2021-22 proposals. Reporting in Form 26 AS is misleading and confusing as it provides an incorrect investment value at the individual investor level, AMFI has cited in its letter to the CBDT. Moneycontrol has a copy of this letter.
This matter is important because the new financial year has just begun. Starting April 1, 2021, our mutual funds’ holdings, capital gains and bank tax deduction data would be synced directly to our income tax account. This will then be directly pre-filled into your income tax returns.
Increase in compliance
“Many people having joint holdings in mutual funds have received income tax notices. I have seen such notices in the real estate industry as well, wherein money was paid by the husband for purchase of property and spouse was a joint owner. The source of money to purchase a house was questioned in the notice sent to the spouse, who is a homemaker and doesn’t have any income,” says Karan Batra, founder, Chartered Club of India.
To be sure, mutual funds need to report high value investments. But in the case of a real estate, the stamp valuation officer informs the income-tax department about sale or purchase of jointly-held properties. These are measures put in place by the income-tax department to avoid tax evasion.
However, these measures are leading to compliance nightmare for individuals. Mutual fund houses too are inundated with queries from hassled customers who need to spend time and money in responding to tax notices or even filing tax returns for non-earning family members.
How to resolve?
While the Central Board of Direct Taxes needs to clarify the stand for both mutual fund and real-estate transactions to avoid multiple notices being triggered every year, there are ways you can respond.
Firstly compare your and your family member’s Form 26 AS carefully through the NSDL website or the tax filing portal www.incometaxindiaefiling.gov.in. If the same transaction has been reported under Form 26 AS for both, then delete the details from the non-earning member’s income tax returns. “Though the data is pre-filled from Form 26 AS, but we have the option to amend the pre-filled returns”, says Batra.
Additionally, Batra adds that if you receive such a notice then you can respond saying that the money for the investment was paid by the spouse.