{"id":41494,"date":"2026-07-10T17:00:44","date_gmt":"2026-07-10T11:30:44","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=41494"},"modified":"2026-07-10T15:32:23","modified_gmt":"2026-07-10T10:02:23","slug":"how-do-tax-rules-affect-returns-on-liquid-funds-in-india","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/how-do-tax-rules-affect-returns-on-liquid-funds-in-india\/","title":{"rendered":"How do tax rules affect returns on liquid funds in India?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_40 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" area-label=\"ez-toc-toggle-icon-1\"><label for=\"item-6a6f16ec8d102\" aria-label=\"Table of Content\"><span style=\"display: flex;align-items: center;width: 35px;height: 30px;justify-content: center;direction:ltr;\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/label><input  type=\"checkbox\" id=\"item-6a6f16ec8d102\"><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/kuvera.in\/blog\/how-do-tax-rules-affect-returns-on-liquid-funds-in-india\/#for_investments_made_on_or_after_april_1_2023\" title=\"for investments made on or after april 1, 2023\">for investments made on or after april 1, 2023<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/kuvera.in\/blog\/how-do-tax-rules-affect-returns-on-liquid-funds-in-india\/#for_investments_made_before_april_1_2023\" title=\"for investments made before april 1, 2023\">for investments made before april 1, 2023<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/kuvera.in\/blog\/how-do-tax-rules-affect-returns-on-liquid-funds-in-india\/#tax_on_liquid_funds_fy_2026-27\" title=\"tax on liquid funds (fy 2026-27)\">tax on liquid funds (fy 2026-27)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/kuvera.in\/blog\/how-do-tax-rules-affect-returns-on-liquid-funds-in-india\/#dividend_taxation\" title=\"dividend taxation\">dividend taxation<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/kuvera.in\/blog\/how-do-tax-rules-affect-returns-on-liquid-funds-in-india\/#what_this_means_for_investors_in_2026\" title=\"what this means for investors in 2026\">what this means for investors in 2026<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/kuvera.in\/blog\/how-do-tax-rules-affect-returns-on-liquid-funds-in-india\/#FAQs\" title=\"FAQs\">FAQs<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<p><span style=\"font-weight: 400;\">liquid funds are debt mutual funds. invest in short-term stuff. treasury bills. commercial paper. certificates of deposit. maturities up to 91 days.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">tax treatment depends on purchase date. rules changed in 2023. changed again in 2024.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"for_investments_made_on_or_after_april_1_2023\"><\/span><b>for investments made on or after april 1, 2023<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">finance act 2023 brought section 50aa. changed tax for specified mutual funds. liquid funds fall here.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">any gains from units bought on or after april 1, 2023 are short-term capital gains. does not matter how long held. 10 days or 10 years. same.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">gains added to total income. taxed at slab rate. no indexation. no ltcg rate.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">someone in 30% bracket pays 30% plus cess. someone in 5% bracket pays 5%. the new rule works better for lower-slab investors. earlier they paid 20% flat on long-term gains. now they pay their slab rate. which could be lower.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"for_investments_made_before_april_1_2023\"><\/span><b>for investments made before april 1, 2023<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">older investments have different rules.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">held 24 months or less. short-term capital gains. taxed at slab rate.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">held more than 24 months. long-term capital gains. taxed at 12.5%. no indexation.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">units sold before july 23, 2024 had different rules. 36 months holding. 20% with indexation. that does not apply to redemptions in 2026.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"tax_on_liquid_funds_fy_2026-27\"><\/span><b>tax on liquid funds (fy 2026-27)<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<table>\n<tbody>\n<tr>\n<td>\n<p style=\"text-align: center;\"><strong>purchase date<\/strong><\/p>\n<\/td>\n<td style=\"text-align: center;\"><strong>holding period<\/strong><\/td>\n<td style=\"text-align: center;\"><strong>tax rate<\/strong><\/td>\n<td>\n<p style=\"text-align: center;\"><strong>indexation<\/strong><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">before april 1, 2023<\/span><\/td>\n<td><span style=\"font-weight: 400;\">24 months or less<\/span><\/td>\n<td><span style=\"font-weight: 400;\">slab rate<\/span><\/td>\n<td><span style=\"font-weight: 400;\">no<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">before april 1, 2023<\/span><\/td>\n<td><span style=\"font-weight: 400;\">more than 24 months<\/span><\/td>\n<td><span style=\"font-weight: 400;\">12.50%<\/span><\/td>\n<td><span style=\"font-weight: 400;\">no<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">on or after april 1, 2023<\/span><\/td>\n<td><span style=\"font-weight: 400;\">any period<\/span><\/td>\n<td><span style=\"font-weight: 400;\">slab rate<\/span><\/td>\n<td><span style=\"font-weight: 400;\">no<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2><span class=\"ez-toc-section\" id=\"dividend_taxation\"><\/span><b>dividend taxation<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">dividends from liquid funds added to income. taxed at slab rate. dividend distribution tax abolished from april 1, 2020.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">tds at 10% under section 194k. applies if total dividend exceeds \u20b95,000 in a financial year. no tds if form 15g or 15h submitted.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">for non-residents. tds is 20% under section 196a. \u20b95,000 threshold does not apply.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"what_this_means_for_investors_in_2026\"><\/span><b>what this means for investors in 2026<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">new investments after april 1, 2023 are less tax-efficient. tax advantage over fixed deposits has narrowed. both taxed at slab rate.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">fixed deposits taxed on accrual basis. liquid fund gains taxed only on redemption. that remains a small advantage.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">for pre-april 2023 investments. 12.5% ltcg rate available. only if held over 24 months. consider holding periods before redemption.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">finance bill 2024 revised the definition of &#8220;specified mutual fund&#8221; under section 50aa. from fy 2025-26 onwards, it narrowed strictly to debt-oriented mutual funds that invest more than 65% in debt and money market instruments.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"FAQs\"><\/span><b>FAQs<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><b>1. are liquid funds taxed at slab rate in 2026 ?<\/b><\/p>\n<p><span style=\"font-weight: 400;\">A. yes. for purchases on or after april 1, 2023. all gains are short-term. taxed at slab rate.<\/span><\/p>\n<p><b>2. do liquid funds have indexation benefit in 2026 ?<\/b><\/p>\n<p><span style=\"font-weight: 400;\">A. no. indexation is not available for any liquid fund purchase. pre-april 2023 funds get 12.5% ltcg. no indexation.<\/span><\/p>\n<p><b>3. what is the ltcg rate on liquid funds for 2026 ?<\/b><\/p>\n<p><span style=\"font-weight: 400;\">A. for pre-april 2023 funds held over 24 months. 12.5% flat rate. no indexation.<\/span><\/p>\n<p><b>4. is tds deducted on liquid fund redemptions ?<\/b><\/p>\n<p><span style=\"font-weight: 400;\">A. no. tds is not deducted on capital gains from mutual funds for resident investors.<\/span><\/p>\n<p><b>5. how is dividend from liquid funds taxed in 2026 ?<\/b><\/p>\n<p><span style=\"font-weight: 400;\">A. added to income. taxed at slab rate. tds applies if dividend exceeds \u20b95,000.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>liquid funds are debt mutual funds. invest in short-term stuff. treasury bills. commercial paper. certificates of deposit. maturities up to 91 days. tax treatment depends on purchase date. rules changed in 2023. changed again in 2024. for investments made on or after april 1, 2023 finance act 2023 brought section 50aa. changed tax for specified [&#8230;]<\/p>\n<p><a class=\"btn btn-secondary understrap-read-more-link\" href=\"https:\/\/kuvera.in\/blog\/how-do-tax-rules-affect-returns-on-liquid-funds-in-india\/\">Read More&#8230;<\/a><\/p>\n","protected":false},"author":41,"featured_media":41495,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false},"categories":[822],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - 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