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I know that if long term capital gains tax on equity mutual funds is less than Rs 1 lakh, it is tax free. If I have capital gains of Rs 7,000 after 12 months in my equity mutual funds, do I need to file it in my income tax?I want to know whether I need to file income tax if the capital gains in equity mutual fund is less than Rs 1 lakh or equal to Rs 1 lakh after a year?
--Aadil Bashir Nakhwa

Tarun Birani Founder and CEO TBNG Capital Advisors, responds:

Long term capital gains accrued from selling equity shares and equity-oriented mutual funds are exempt from tax up to Rs 1 lakh in a financial year. The gains in excess of Rs 1 lakh are taxed at flat 10%. The word ‘exemption’ means exclusion. So, if a particular income is exempt from tax, it will not be included in the total revenue for tax purposes. This reduces the total taxable income of a taxpayer.

Filing income tax returns is mandatory for individuals with income of more than Rs 2.5 lakh. We recommend that you file your income tax return, even though it is not mandatory if total income isn’t over Rs 2.5 lakh. This can be referred to as nil income tax return filling. A nil income tax return can be filed to show the Income Tax Department that you fall below the taxable income and therefore did not pay taxes during the year. There are several instances where this can serve as a proof, say, when you are applying for visa or immigration process. Also, you can claim rebates if any.