As an investor, learn the rules of liquid mutual fund taxation

Liquid funds are one of the equity mutual fund groups. Therefore, similar to equity funds, they are taxed.

When you redeem your investment in profit, you make capital gains. A capital gain is a difference between the value at which an investor bought units of a mutual fund scheme and the value at which he sold or redeemed it.

According to current tax law, it divides capital gains into two distinct categories based on the generated of long-term capital gains (LTCG) and short-term capital gains (STCG). 

Here we will discuss best liquid funds 2019; taxation will based on these rules-

When you sell your debt or non-equity-oriented mutual fund investments within 36 months, the profit derived from selling them will be classified as short-term capital gains (STCG) and taxed according to the Income-tax slab rate.

If the investment made for more than 36 months, the profit derived from debt mutual funds is considered a long-term capital gain. Long-term capital gains taxed at 20% after providing an index advantage over costs. 

Tax treatment on liquid mutual funds usually depends on these three parameters:

  • Type of asset (equity or debt)
  • Investor class (individual, HUF, NRI or domestic company)
  • Investment Period (long term or short term)

Liquid funds are debt category mutual funds.

They are subject to two forms of tax –

  • Long-term capital gains (LTCG) tax and
  • Short-term capital gains (STCG) taxes. 

Short-term capital gains (STCG) taxes-  If debt instruments or debt-oriented liquid mutual funds (including liquid funds) are sold within 36 months of purchase, then dividends and short-term capital gains are added to your income and taxed according to the income tax slab (0%, 5%, 20% or 30%). 

Long-term capital gains (LTCG) tax-  If best liquid funds 2019 (or other debt funds) are held for more than 36 months, all profits will be viewed as long-term capital gains and taxed at 20 percent with indexed gains. Indexation lets you increase the cost of your purchase and reduce your tax liability with an inflation index rate.

This tax treatment applies to individuals, HUFs and domestic companies.

For NRIs, STCG is the same. LTCG for NRIs is 20% with indexing for listed entities and 10% without indexing for non-listed entities. 

Conclusion: Tax implications for best liquid funds 2019 are: How long you keep investing in debt funds, depending on the rate of holding tax. Capital gains made during a period of fewer than three years are known as short-term capital gains (STCG).

Long term capital gains (LTCG) are known as return on investment above three years. In the case of LTCG, taxation levied at the rate of 20% after indexation.

Because we know that a top liquid fund is an investment, it receives non-interest returns. Therefore these returns are taxable at the slab level if the holding period is less than three years and for more than three years, the gain will taxed at the rate of 20%.

Maria Fernsby

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