How are liquid funds taxed? Can we ask for DDT refund?

DDT is all together different than what you have mentioned. DDT is paid by fund house when they declare any dividend to the investors.

Here if you sell within 3 years, the gains which you earned will be short term capital gains, liable to be taxed at slab rate.

In case, fund house has deducted any tax (TDS), at the time of redemption; you can ask for refund as you did in bank FD.

Originally posted by : Dhirajlal Rambhia
	DDT is all together different than what you have mentioned. DDT is paid by fund house when they declare any dividend to the investors. Here if you sell within 3 years, the gains which you earned will be short term capital gains, liable to be taxed at slab rate. In case, fund house has deducted any tax (TDS), at the time of redemption; you can ask for refund as you did in bank FD.

Thank you for the answer Mr. Rambhia.

Can you tell what will happen with our case? We will mostly sell within 3 years. So is DDT non refundable? How can we get it refunded as my friend does not come into any tax slab.

Go for GROWTH option, no DDT will be deducted.

Any gains will be Short term gain, no tax liability when below basic limit.

No TDS deducted presently on redemption; but if deducted at that time you can ask for refund in your ITR.

Originally posted by : Dhirajlal Rambhia
	Go for GROWTH option, no DDT will be deducted. Any gains will be Short term gain, no tax liability when below basic limit. No TDS deducted presently on redemption; but if deducted at that time you can ask for refund in your ITR.

Thank you for the answer Mr. Rambhia.

If we go for Dividend, DDT will be deducted and cannot be refunded, is that correct? The reason we want to choose liquid funds is due to its short maturity period. We would like to buy and sell the units.

So, no tax for STCG below basic limt. Thank you.

Yes, DDT is not refundable, and the dividend received is tax-free in the hands of investor. That's the reason Dividend option is chosen by high net worth investors, taxable in top bracket.

For low/nil tax rate investors, growth option is more advantageous.

Even frequent buying/selling would not be much rewarding in such type of funds.

Originally posted by : Dhirajlal Rambhia
	Yes, DDT is not refundable, and the dividend received is tax-free in the hands of investor. That's the reason Dividend option is chosen by high net worth investors, taxable in top bracket. For low/nil tax rate investors, growth option is more advantageous. Even frequent buying/selling would not be much rewarding in such type of funds.

Thank you for the answer Mr. Rambhia.

As we are in no tax slab, it will be advtangeous for us if we choose Growth instead of Dividend and frequent buying and selling in not much rewarding. Ok.

So, if my friends invests 10,000 and if that 10,000 becomes 10,175 in 3 months, we got this 175 only after the DDT was taxed at 28.32%? And no more paying of any tax on the accumulated 175? Is that correct?

This is short term capital gain and no DDT been deducted here. As your friend's income is below taxable limit. No tax payable in this case.

Suppose you had opted for Dividend option you would have got dividend of about 125/- after deducting DDT of about 50/- Rs. (principal amount remaining same of 10K)

Here the dividend (Rs.125/-) is taxfree, but you cannot get back the DDT deducted of Rs. 50/- Hence its advisable in your case to go for Growth option.

No, DDT is completely different from TDS. There is no TDS applicable on mutual funds if the investor is a resident. So, no question of refund of either DDT or TDS. 

In case of FD, TDS is deducted which as rightly pointed out by you is reflected in form 26AS and can be claimed as a credit while filing tax return. 

Tell your friend NOT to opt for dividend option of liquid MF scheme - opt for the GROWTH option - there is no DDT implication in case of growth option and hence the effective return from the MF scheme will be higher. 

Originally posted by : Dhirajlal Rambhia
	This is short term capital gain and no DDT been deducted here. As your friend's income is below taxable limit. No tax payable in this case. Suppose you had opted for Dividend option you would have got dividend of about 125/- after deducting DDT of about 50/- Rs. (principal amount remaining same of 10K) Here the dividend (Rs.125/-) is taxfree, but you cannot get back the DDT deducted of Rs. 50/- Hence its advisable in your case to go for Growth option.

Thank you for the information Mr. Rambhia.

So it is advisable for us to stay invested and do not go for Dividend and choose Growth. But for how long should we be invested in order to get the full accumulated gains. If we stay invested for 3 years, is it called LTGC and no DDT on LTGC?

Thank you very much.

Originally posted by : Abhinav Gulechha
	No, DDT is completely different from TDS. There is no TDS applicable on mutual funds if the investor is a resident. So, no question of refund of either DDT or TDS.  In case of FD, TDS is deducted which as rightly pointed out by you is reflected in form 26AS and can be claimed as a credit while filing tax return.  Tell your friend NOT to opt for dividend option of liquid MF scheme - opt for the GROWTH option - there is no DDT implication in case of growth option and hence the effective return from the MF scheme will be higher.

Yes my friend is a resident. Thank you for the answer Mr. Gulechha.

Well, investment in different schemes of mutual fund, period of investment, etc. depends mainly upon the risk appetite of the investor along with his goal, age, capacity etc. etc.

For more on liquid mutual fund schemes refer: https://www.thehindubusinessline.com/portfolio/beyond-stocks/liquid-funds-havent-lost-all-their-lustre/article6431997.ece

and of course, similar articles........

Originally posted by : Dhirajlal Rambhia
	Well, investment in different schemes of mutual fund, period of investment, etc. depends mainly upon the risk appetite of the investor along with his goal, age, capacity etc. etc. For more on liquid mutual fund schemes refer: https://www.thehindubusinessline.com/portfolio/beyond-stocks/liquid-funds-havent-lost-all-their-lustre/article6431997.ece and of course, similar articles........

I read such websites Mr. Rambhia but sometimes i still have some doubts because Financial field is new to me. I ask these questions so that i can go forward without any doubt, as this forum has many professionals and experts who can easily clear my doubts.

I will read the link you have given me. Thank you very much for all the information.

Originally posted by : Dhirajlal Rambhia
	Well, investment in different schemes of mutual fund, period of investment, etc. depends mainly upon the risk appetite of the investor along with his goal, age, capacity etc. etc. For more on liquid mutual fund schemes refer: https://www.thehindubusinessline.com/portfolio/beyond-stocks/liquid-funds-havent-lost-all-their-lustre/article6431997.ece and of course, similar articles........

I read such websites Mr. Rambhia but sometimes i still have some doubts because Financial field is new to me. I ask these questions so that i can go forward without any doubt, as this forum has many professionals and experts who can easily clear my doubts.

I will read the link you have given me. Thank you very much for all the information.

Originally posted by : Dhirajlal Rambhia
	Well, investment in different schemes of mutual fund, period of investment, etc. depends mainly upon the risk appetite of the investor along with his goal, age, capacity etc. etc. For more on liquid mutual fund schemes refer: https://www.thehindubusinessline.com/portfolio/beyond-stocks/liquid-funds-havent-lost-all-their-lustre/article6431997.ece and of course, similar articles........

I read such websites Mr. Rambhia but sometimes i still have some doubts because Financial field is new to me. I ask these questions so that i can go forward without any doubt, as this forum has many professionals and experts who can easily clear my doubts.

I will read the link you have given me. Thank you very much for all the information.