Sold multi-asset MFs?
Before filing ITR, check the fund’s underlying asset mix as it determines tax treatment;
know how to file return on such gains
Jul 24, 2026
Synopsis
Multi-asset mutual fund taxation depends on equity and debt exposure. Equity-oriented funds have specific tax rates and holding periods. Debt-oriented funds are taxed at investor slab rates after 24 months. Specified mutual funds treat all gains as short-term capital gains. Correct ITR schedules are crucial for reporting these gains accurately.
A multi-asset mutual fund (MF) as the name suggests invests in various asset classes such as equity, debt, commodities, and Real Estate Investment Trusts (REITs), among others. This category of mutual funds, however, operates under a different taxation framework compared to other mutual funds.
In the case of multi-asset mutual funds, the taxation is determined based on the fund's asset allocation. Depending on whether the fund qualifies as an equity-oriented, debt-oriented, or specified mutual fund, the respective tax treatment as aforementioned will apply. Thus, the tax treatment of a multi-asset allocation mutual fund is driven by its underlying asset allocation.
Chartered Accountant Suresh Surana told ET Wealth Online that depending on the proportion of equity, debt and other assets in the portfolio, the multi-asset mutual fund may qualify as an equity-oriented fund, a non-equity fund, or a specified mutual fund under the Income-tax Act, 1961.
Keep reading to know the entire taxation structure works for mutli-asset mutual funds and how to file ITR with such gains.
How does taxation of a multi-asset mutual fund work?
An overview of the taxation framework is provided in the table below:
Source: CA Suresh Surana
Surana explains how capital gains may either be taxed depending on the nature and asset allocation of the fund as follows:
● Taxation on equity mutual funds
An equity mutual fund is one where at least 65% of the portfolio is invested in equity shares of domestic companies. The sales of units would be categorised as long-term or short-term gains, depending on the period of holding such units.
The period of holding such units would be from the date of acquisition to the sale date. If the units of listed equity mutual funds are held for more than 12 months before the sale, the gains derived would be long-term capital gains in nature; otherwise, short-term capital gains.
Short-term capital gains (STCG): The short-term capital gains would be taxed at the rate of 20% under Section 111A of the Income Tax Act.
Long-term capital gains (LTCG): The long-term capital gains are taxed at 12.5% under Section 112A of the I-T Act provided gains exceed the threshold limit of Rs 1.25 lakh in a financial year.
● Taxation on debt mutual funds
Similar to the taxation of equity mutual funds, the taxation of debt mutual funds also depends upon whether the units are long-term or short-term based on their period of holding.
However, in this case, the gains are categorized as short-term, if the units are sold within 24 months; otherwise, they would be categorised as long-term.
Short-term capital gains (STCG): Short-term capital gains would be taxed at the applicable marginal slab rate of the investor.
Long-term capital gains (LTCG): The long-term capital gains of debt funds are taxed at 12.5% without indexation under Section 112 of the Act.
● Taxation on specified mutual funds
In case of any specified mutual funds*, the gains derived from the said mutual funds would be deemed to be short-term capital gains under section 50AA of the I-T Act and accordingly subject to tax as per the applicable marginal slab rates applicable to the investor/taxpayer.
*Note: W.e.f. 1st April 2025, "Specified Mutual Fund" shall mean a mutual fund:
(a) a mutual fund by whatever name called which invests more than 65% of its total proceeds in debt and money market instruments; or
(b) a fund which invests 65% or more of its total proceeds in units of a fund referred to in sub-clause (a)
How to report gains from selling multi-asset mutual funds in ITR-1, 2, 3?
Surana says that the reporting of gains from multi-asset mutual funds in the income tax return would depend on your ITR form eligibility and the tax classification of the fund.
The income is generally reported under the heads of income: "Capital Gains" at the time of redemption or transfer of units, while dividend income, if any, is reported under the heads of income: "Income from Other Sources".
Surana explains the ITR form-specific disclosures:
ITR-1 (Sahaj)
In ITR-1, reporting is very limited. A taxpayer can use ITR-1 only when he/she is otherwise eligible to file ITR-1, and the capital gain is restricted to long-term capital gains under Section 112A up to Rs 1.25 lakh.
ITR-1 cannot be used where the taxpayer has short-term capital gains, long-term capital gains under Section 112A exceeding Rs 1.25 lakh, brought forward or carry forward losses, business income, the total income exceeding Rs 50 lakh, or other disqualifying conditions.
Therefore, if the redemption of a multi-asset fund results in short-term capital gains, gains taxable under Section 50AA, or taxable LTCG exceeding the prescribed threshold of Rs 1.25 lakh, ITR-1 should not be used.
ITR-2
In ITR-2, which is applicable to individuals and HUFs not having income from business or profession, gains from redemption of multi-asset mutual funds should be reported in Schedule CG - Capital Gains.
The income tax department's ITR-2 utility provides Schedule Capital Gains for reporting short-term and long-term capital gains/losses from different types of capital assets.
ITR-3
In ITR-3, the reporting principle is similar to ITR-2, but this form is used where the individual or HUF also has income from business or profession. Thus, a taxpayer having business/professional income and capital gains from multi-asset mutual funds would generally report such gains in ITR-3 under the relevant capital gains schedules.
The income tax department states that ITR-3 is applicable to individuals and HUFs having income under the heads salary/pension, house property, profits or gains of business or profession, capital gains, or income from other sources, where they are not eligible for ITR-1, ITR-2, or ITR-4.
Check the correct ITR schedule before filing ITR with gains from multi-asset mutual funds
Where the multi-asset fund qualifies as an equity-oriented fund and the gain is taxable under Section 112A, the relevant details are also required to be reported in Schedule 112A, which covers the sale of equity shares, equity-oriented fund units, or business trust units on which Securities Transaction Tax (STT) is paid.
The correct schedule and tax rate would depend on the classification of the multi-asset fund. If the fund qualifies as an equity-oriented mutual fund, short-term capital gains may be reported as gains taxable under Section 111A, while long-term capital gains may be reported under Section 112A, subject to STT and other prescribed conditions.
Where the multi-asset fund falls within the definition of a specified mutual fund under Section 50AA, the gains are treated as short-term capital gains irrespective of the period of holding and are taxable at the applicable slab rate.
Accordingly, before filing an income tax return, a taxpayer should verify the multi-asset mutual fund's asset allocation, whether it qualifies as equity-oriented or a specified mutual fund, the date of purchase, the date of redemption, sale/redemption value, cost of acquisition, expenses on transfer, STT applicability, and the capital gains statement issued by the mutual fund.
[The Economic Times]
