Income Tax: This is how the Income Tax Department catches hold of those who invest black money in mutual funds..

It is important for investors investing in mutual funds in India to know that information about these investments is given to the Income Tax Department. When a person invests a large amount in a mutual fund, its report reaches the Income Tax Department directly. Its purpose is to increase transparency and to see if there is any difference between the information given in the tax return and the actual transaction.

According to the rules, if an investor invests a total of Rs 10 lakh or more in one or more mutual fund schemes, then its information is sent to the department. Similarly, information is also received from the stock market and depositories about when the investor made a profit or sold his funds.

All this data is submitted every year through Form 61A. Later, this information appears in the investor's Annual Information Statement (AIS) and Form 26AS. This simply means that if someone made a big investment or made a profit from it, then they cannot hide it.

Experts believe that every major transaction can be tracked through this reporting system. This includes initial investments as well as capital gains. This allows the department to easily check whether the income declared by the investor matches the actual transactions.

Taxpayers need to keep accurate records of their investments. Because the Income Tax Department looks at information not only about mutual funds but also about bank deposits, credit card payments, FDs, and other major transactions. If this information does not match while filing returns, then a problem may arise.

What will happen if someone hides information?

Income Tax Department Notice: The Income Tax Department can get information about investments in mutual funds through the AMC (Asset Management Company) or KYC data. If you do not provide this information on the tax return, the department can send a scrutiny notice. You will have to show the source and records of investment.

Heavy penalty: If you hide the income (such as capital gains) or the amount of investment in mutual funds, then under section 271(1)(c) of the Income Tax Act, a penalty of 100% to 300% can be imposed on the amount hidden.

Heavy interest: If tax is not paid on the income from mutual funds, then 1% interest per month may have to be paid on the outstanding tax under section 234B and 234C.

Tax evasion case: If the amount is very large and it is proved that you deliberately hid the information, then a case of tax evasion can be made. Under this, according to section 276C, there can be a jail term of 6 months to 7 years.

Source investigation: The Income Tax Department will investigate the source of the investment money. If you are unable to tell the source, then considering it as undeclared income, you may have to pay a total tax of 83.25% with 60% tax, 25% surcharge, and 4% cess. This action is taken under section 115BBE.

For example, suppose you invested Rs 50 lakh in mutual funds and did not give information about it. If this is caught, the department will ask where did this money come from? If the source is not legal, then 83.25% tax (about 41.63 lakhs) and penalty (100-300%) can be levied on 50 lakhs. Not only this, if there is a gain of 10 lakhs from mutual funds and you do not pay tax, then capital gain tax (10-20%) and penalty will be levied on that too.

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