Dividends from Liquid ETFs and Liquid BeES are taxed according to your income tax slab rate. When these dividend units are eventually sold, the dividend value is treated as the cost of acquisition, and any gains from the sale are taxed under capital gains.
Capital gains taxation on dividend units
- Short-term capital gains (STCG): STCG applies if the units are sold within 3 years and are taxed at your slab rates.
- Long-term capital gains (LTCG): LTCG applies if the units are held for over 3 years and are taxed at 12.5% (with the first ₹1,25,000 of gains exempt from tax in a financial year).
Example scenario
- Purchase: 1,000 units of Liquid BeES were purchased at ₹1,000 per unit.
- Dividend: You receive a dividend of 35 units during the financial year.
Tax on dividends
- These 35 units are taxed based on their market value at ₹1,000 per unit
- The total taxable value is ₹35,000 (35 units × ₹1,000)
- The tax rate applied will be your income tax slab rate
When you sell dividend units (STCG and LTCG)
If you purchased before April 1, 2023:
- Short-term capital gains (STCG): If the units are sold within 3 years, the gains are considered short-term and taxed at your slab rate
- Long-term capital gains (LTCG): If the units are held for over 3 years, they are treated as long-term and taxed at 12.5% with indexation
If you purchased after April 1, 2023:
-
All gains, regardless of the holding period, will be considered short-term and taxed at your income slab rate
Things to keep in mind
-
If the dividends cross ₹5,000, an additional TDS of 10% is applicable.
- Contact a chartered accountant for assistance with tax filing.