Joint Mutual Fund Holdings & AIS Discrepancies: What a Housewife Should Do
Scenario: Mr. A and Mrs. A hold mutual funds jointly. Mr. A regularly invests from his savings and files his income tax returns. Mrs. A is a housewife, and her income is below the taxable limit, so she doesn’t file an ITR. However, Mrs. A’s Annual Information Statement (AIS) shows the purchase of these mutual fund units as a Specified Financial Transaction (SFT).
This situation raises common questions: Will this attract tax queries? What should Mrs. A do to avoid issues? Should she file an ITR? And what feedback option should she select in her AIS?
Expert Advice from CA Akshay Jain, Direct Tax Partner, NPV, Associates LLP:
In a joint mutual fund holding where one individual (the husband in this case) is the sole investor and the other (the wife) has no beneficial ownership, here’s what you need to know:
1. Tax Liability:
- The primary holder (Mr. A), who made the investment from his income, is liable for income tax on any capital gains from the sale/redemption of MF units or dividend income.
- Mrs. A, despite being a joint holder, has no beneficial ownership or tax liability since the funds did not originate from her.
2. AIS Reporting & Potential Queries:
- Under Rule 114E of the Income Tax Rules, mutual fund purchases exceeding ₹10 lakh in a financial year are reported as SFTs by mutual fund houses. These reports often include all joint holders.
- Consequently, Mrs. A’s PAN gets linked in the AIS even though she isn’t the beneficial owner.
- There’s a possibility of an automated query or compliance intimation from the Tax Department (under e-Campaign or e-Verification schemes) because high-value transactions appear in her AIS, especially when she doesn’t file an ITR. However, such queries are generally automated and can be resolved by providing proper feedback.
3. What Mrs. A Should Do (AIS Feedback):
- Do not panic. This is a common situation and can be clarified.
- Access her AIS portal.
- For each mutual fund purchase transaction incorrectly reflected under her PAN, she should select the appropriate feedback option.
- The correct feedback option to choose is: “Information relates to other PAN.”
- In the accompanying remarks or description box, she should clearly state that the investments were made by her husband (Mr. A) from his own funds, and provide his PAN. She can also mention that her name is included in the joint holding purely for operational convenience and that she is not the beneficial owner or financially involved in these transactions.
4. Should Mrs. A File an ITR?
- No, based on her income being below the taxable threshold, Mrs. A is not required to file an Income Tax Return solely because these SFTs appear in her AIS. The crucial action is to provide accurate feedback within the AIS.
- The responsibility for reporting and paying tax on any income from these investments remains with Mr. A.
By providing clear and accurate feedback in her AIS, Mrs. A can effectively address any automated queries and ensure her tax records are correct without needing to file an ITR.