How are the dividends on Liquid ETFs and Liquid Bees taxed?

Liquid ETFs and Liquid Bees are exchange-traded funds that invest in short-term debt instruments such as treasury bills, commercial paper, and certificates of deposit. The dividends from these ETFs are taxed as 'Income from Other Sources'. In India, the tax rate on dividends from Liquid ETFs and Liquid Bees is the same as the individual's income tax slab rate.

For ex.:

Scenario 1: For STCG (Short Term Capital Gain) – Securities held less than 3 years.

Assume you held 1000 units in the liquid ETFs or liquid bees in portfolio and the purchasing price per unit is Rs. 1000. You got dividend of 35 units in the fiscal year. Your tax on dividend will be taxed as per your income slab during selling the securities. The tax rate for STCG is 15%.

When the dividend units are sold, the actual value of the dividends receive will be considered as the acquisition cost, i.e., (35,000) 35 units x 1000 /- per unit. And the profit realised will be taxed based on the holding period.

Scenario 2: For LTCG (Long Term Capital Gain) – Securities held more than 3 years.

Assume you held 1000 units in the liquid ETFs or liquid bees in portfolio and the purchasing price per unit is Rs. 1000. You got a dividend of 35 units in the fiscal year. Your tax on dividend will be taxed as per your income slab during selling the securities. The tax rate for LTCG is 10%.

When the dividend units are sold, the actual value of the dividends received will be considered as the acquisition cost, i.e., (35,000) 35 units x 1000 /- per unit. And the profit realised will be taxed based on the holding period.

Note:

1. If the dividends paid out on Liquid ETFs and Liquid Bees exceed Rs. 5,000 in a financial year, the fund house is required to deduct a TDS (tax deducted at source) of 10% on the amount of dividends that exceed Rs. 5,000. This is done as per the income tax rules in India.