It's now compulsory to report every redemption transaction in Schedule 112A, which is bothering the equity and MF investors, especially those who otherwise were eligible to file ITR-1.
Things are not very smooth for the mutual fund (MF) industry for the last few years. Not only a sustained low-return phase is testing the nerves of equity fund investors, but repeated bond failures have also left the confidence of investors of even the trusted debt funds shaken.
Now the tax rule making it compulsory to report every redemption transaction in Schedule 112A is further bothering the equity and MF investors, especially those who otherwise were eligible to file the Income Tax Return (ITR) 1 (Sahaj).
Individuals don’t having Income from Business and Profession are generally risk-averse persons – like salaried and senior citizens – some of whom take only calculated risk for higher return by investing in equity-oriented MF scheme, but many of such investors may not be ready to face the hassle of filing relatively complicated ITR-2 only for investing in equity MFs, returns on which are not very lucrative for the last five years.
Take the example of Shukla Basak (name changed), a retired individual, who made some investments in two equity-oriented MF schemes through Systematic Investment Plan (SIP).
“My SIPs were in equity mutual funds and my SIP amounts were of Rs 2,000 per month in one scheme for almost four years and Rs 4,000 per month in another scheme for about one and a half years. The annual returns (CAGRs) were 5.7 per cent for the first scheme and 3.79 per cent for the second,” said Basak.
“As soon as I realised that things were not going to get much better, I opted out. Fortunately that was before the Covid-19 pandemic. So, at least I got my capital back,” she added.
“Now, I am going to do what all senior citizens do, i.e. invest in fully secured government schemes because I cannot take the stress of watching the Sensex go up and down,” she further said.
Not only the lower risk tolerance capacity, but, instead of the ‘Sahaj’ 8-page ITR-1, the hassle of filing the 28-page ITR-2 has also acted as a big deterrent.
“Also filling in ITR-2 was a real hassle and since I used to file my returns myself, I don’t want to repeat that experience,” said Basak.
As Asset Management Companies (AMCs) and intermediaries like CAMS, NSDL, CDSL and most of the distributors don’t provide data in proper format to fill Schedule 112A, the filing process becomes even more difficult.
Sharing her experience of filing ITR-2, Basak said, “The suggestion about AMCs and CAMS providing data in excel format would certainly be useful, but copy-paste is not allowed at all in the excel utility of ITR 2. It only throws up error messages if you try to do it. So, even if all SIP data is provided on an excel sheet, one would still have to enter each line of data manually. I know because I had to fill in 63 lines myself.”
Commenting on the bitter experience that Basak faced, CA Karan Batra, Founder and CEO of CharteredClub.com, said, “Yes, this issue has been correctly highlighted. Government’s excel utility doesn’t allow copy-paste. Softwares are easy to use as they allow us to upload the complete excel file of all the data and no need to manually copy-paste.”
“The Income Tax Department should also give the option in excel utility to upload the file in required format,” said Batra.
As a person not only needs to pay to buy a tax-filing software, but also needs to pay every year for updation, it’s not viable for him/her to install one just to file a single return.
So, an individual either needs to pay to avail services of a professional to file the return, or needs to face the hassle of filing ITR-2 himself/herself.
“It made me think very carefully whether I will keep investing in mutual fund SIPs, because, honestly, the returns I got are not worth at all the hassle of filing ITR-2,” said Basak.
Although, senior citizens have lower risk appetite compared to younger investors, but the ITR hassle may drive away many younger salaried retail investors as well. This is because most of the salaried investors file ITR-1 themselves and would not like to face the hassle of filing a relatively complicated ITR-2, unless things are made easy for them.