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

Dividends on Liquid ETFs and Liquid BeES are taxed according to the investor's 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.

Short-term capital gains (STCG) apply if the units are sold within 3 years and are taxed at the slab rates.

Long-term capital gains (LTCG) apply 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: The investor receives a dividend of 35 units during the financial year.
• Tax on dividend:
  • 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 the investor’s income tax slab rate.
• When selling dividend units (STCG and LTCG):
  • 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 the 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.
  • Purchased After April 1, 2023:
    • All gains, regardless of the holding period, will be considered short-term and taxed at the investor’s income slab rate.

Did you know?

• If the dividends cross ₹5,000, an additional TDS of 10% is applicable.
  
• Contact a chartered accountant for assistance with tax filing.