What is considered as Gross income - Mutual Fund Redemption or STCG?

Great questions from Cs26kit! Let me clarify each point about mutual funds and income tax filing in India:

1. Is filing ITR mandatory if mutual fund STCG is ₹10,000 and FD interest income is ₹60,000 with no other income, and total income is below taxable limit?

• Interest on FD (₹60,000) is taxable under "Income from Other Sources."

• Short-Term Capital Gains (STCG) on mutual funds (₹10,000) are taxable at a flat 15% for equity mutual funds or as per your slab if non-equity.

• If total income (including FD interest + STCG) is below the basic exemption limit (₹2.5 lakh for individuals below 60 years), technically, you are not required to file ITR unless other conditions apply (like foreign assets, cash deposits, or certain notices).

• However, filing ITR is often recommended for record-keeping and to respond to notices.

2. Is mutual fund redemption considered as Gross Income or only STCG on redemption?

• Only the capital gains (STCG or LTCG) from the mutual fund redemption are considered income for tax purposes, not the entire redemption amount (which includes your original investment).

• So, STCG from redemption = taxable income, not the gross redemption amount.

3. Should a belated ITR be filed or just reply to the notice in the Compliance portal?

• Filing a belated ITR is usually the safest option to avoid future issues, even if income is below the taxable limit.

• Simply replying to the notice with reasons might not satisfy the IT department fully.

• Filing ITR creates a proper record and helps clear the notice effectively.

4. If belated NIL ITR is filed before December 31 and total taxable income is less than ₹2.5 lakh, is there any penalty?

• If you file the ITR belatedly before the deadline (usually December 31 of the assessment year), there is generally no penalty if income is below taxable limits.

• Late filing after this date may attract penalties under section 234F.

Summary:

• Only the capital gains (STCG or LTCG) from mutual fund redemption are taxable, not the entire redemption amount.

• If total income (FD interest + STCG) is below ₹2.5 lakh, filing ITR is not mandatory but recommended to comply with notices.

• File a belated return before the deadline rather than just replying to notices.

• No penalty if filed timely and income is below taxable limits.