Mutual fund reporting: What taxpayers should know about high-value investments

Investors in India should be aware that mutual funds are legally required to report substantial transactions to the Income Tax Department through the statement of financial transactions (SFT). This framework aims to enhance transparency and helps the department track potential discrepancies in tax filings.

How mutual fund reporting works?

Under Rule 114E of the Income Tax Rules, any investment of ₹10 lakh or more in one or more schemes of a mutual fund must be reported to the tax authorities. Separately, stock exchanges, depositories, and registrars provide information on capital gains from listed securities and mutual fund units.

The data is submitted annually in Form 61A and reflected in a taxpayer’s Annual Information Statement (AIS) and Form 26AS.

According to CA Sonu Jain, Chief Risk and Compliance Officer of 9Point Capital, “Reporting requirements are designed to cover high-value transactions comprehensively, including both initial investments and capital gains. This allows the department to reconcile declared income with actual financial activity.”

Why this matters for taxpayers

For taxpayers, mutual fund reporting is part of a wider system of financial disclosures that also include bank deposits, credit card payments, fixed deposits, and other high-value transactions.

Manish Goyal, Chairman and Managing Director at Finkeda, noted, “The Income Tax Department uses this information to verify tax filings. Investors should keep detailed records of their investments to ensure consistency with returns.”