LIQUIDBEES distributes dividends in the form of additional units credited periodically. These units are treated as dividend income with TDS deductions reflected in Form 26AS and AIS, including pre-filled data in the income tax portal.
The taxed dividend income is considered as the acquisition cost for the new units. So, all new units received should have a cost basis of Rs. 1000. Consequently, upon sale of LIQUIDBEES units at Rs. 1000 each, there should ideally be no capital gains, except for minor deviations due to slight premiums or discounts.
However, the current Zerodha Tax P&L reports inaccurately list the cost basis of newly acquired LIQUIDBEES units as zero. This misreporting results in apparent capital gains upon their sale, leading to double taxation on LIQUIDBEES gains.
Given the popularity of LIQUIDBEES, it is surprising that this issue has not garnered more attention. I urge Zerodha to address this promptly and ensure that their tax P&L reports accurately reflect cost basis for these units. Until resolved, it would be beneficial for Zerodha to create a support page acknowledging this issue. This page should guide users on how to correctly report capital gains, thereby aiding in compliance during potential income tax scrutiny.
I prefer not to manually adjust system-generated reports, and the current situation complicates maintaining accurate bookkeeping for auditing purposes.
Thanks for the response. Will the changes be live before end of this month? And will changes be applied to historical P&L reports (when I download them next from Zerodha)? I am willing to to wait until last day before filing taxes.
The support article describes how dividends from LIQUIDBEES are taxed. We need a support article titled “Zerodha Tax P&L entries are INCORRECT for LIQUIDBEES” with details.
When income tax department asks me why STCG in my tax return are not consistent with report from brokerage, I should be able to point them to an article where you acknowledge the issue, and not an article that teaches them how taxation works.
Also, please prioritize fixing the capital gains report by using correct cost basis for LIQUIDBEES (over introducing a new section “income from other sources” for liquidbees). We already have access to “income from other sources” from Form 26AS, AIS and prefilled form-data in income tax portal. Thanks.
It is very disappointing to see all LIQUIDBEES appearing as capital gain in AIS report because Zerodha have reported zero cost of acquisition. First dividend LIQUIDBEES are taxed under “dividend” category and then again appearing as capital gain. How come Zerodha has not fixed it as yet is beyond my understanding! For now, I have choosen “Information is duplicate/covered elsewhere” in AIS feedback. I have sent the feedback to Income Tax. They should question Zerodha.
Stockbrokers do not report capital gain info to the Income Tax Department. Instead, the ITD retrieves data from entities such as exchanges, depository, clearing corporations.
To clarify, let’s consider a hypothetical scenario:
I purchase 100 units of LIQUIDBEES at Rs. 1000 per unit, amounting to a total cost basis of Rs. 1,00,000. At a later point, I receive a dividend of 1 unit. Subsequently, I sell 101 units at Rs. 1000 per unit, resulting in proceeds of Rs. 1,01,000. This transaction yields a total gain of Rs. 1000.
For tax purposes, the Rs. 1000 gain is categorized as dividend income (reported in Form 26AS), which is expected. According to tax regulations, the capital gains in this scenario should be zero. This is because the additional unit acquired through the dividend income should have a cost basis of Rs. 1000.
However, capital gains reported by Zerodha incorrectly shows Rs. 1000 as capital gains (due to assigning a zero buy value to the extra units). This discrepancy needs to be rectified.
I have raised a support ticket (20240708740039) with Zerodha to address this and ensure accurate tax reporting. The initial response from the support team indicates that they may not be aware of this specific issue.
@nithin, @TheGouda - Could you please confirm that this matter is being prioritized for resolution? I would appreciate updates on the progress.
Brokers don’t report user transaction details to the IT department, but IT fetches details from Depositoris, Exchanges, RTAs, etc., where matching minute-level data is very difficult. In most cases, AIS and the broker’s capital gains report might not match. So, while filing the returns, users/CAs must correct the AIS report and file accordingly.
For now, the article under taxation clarifies how to file taxes for liquid ETFs. But I understand not everyone may notice it. So, we’ll start by showing the Liquid ETFs gains separately in the Tax P&L. You’ll see changes in the coming weeks. Some other enhancements are also WIP for Tax P&L; we’ll keep you posted.
@TheGouda We are not asking for consistency between AIS and the broker reports.
We are asking that the broker report capital gains correctly. Please check the example above on how your current capital gains report are incorrect and result in double taxation of LIQUIDBEES gains.
Ideally the Liquid ETF gains including Dividend units Should not be reported as Capital gains . May be Dividend Units should be under Dividend Income and may be slight change in price should be in Capital Gains.
It’s a Bug in Zerodha reporting process. So, Kindly help to fix this in priority.
@TheGouda This isn’t an issue of investor education. There’s no confusion about how LIQUIDBEES gains are taxed, thanks to your existing support article which you keep referencing whenever I bring this up. The problem lies with Zerodha’s persistent reporting of INCORRECT capital gains data over the years, leading retail investors to overpay their taxes. I can’t be the only one affected by this.
Have you publicly acknowledged this issue? No.
Have you informed affected users about this? No.
Have you provided guidelines on how to generate accurate tax P&L statements while you address this issue? No.
Do you realize that affected investors now have to amend their previous years’ tax returns because of this issue? Shouldn’t you be taking this more seriously?
Instead, you’re advising me to “file ITR as per the reports provided by Zerodha” (support ticket - 20240708740039), despite clear evidence of inaccuracies in these reports.
@nithin It is beyond me how Zerodha is maintaining a casual laid-back approach despite such a serious screw-up. There needs to be reflection on how such a serious issue went unnoticed for so long (or was deprioritized despite being known) and how it was handled to ensure prevention in the future. I have a great deal of respect for you and Zerodha, and I trust that you will take appropriate action in this matter.
@TheGouda@vijethdinesha Does this issue occur with LIQUIDCASE as well? I heard that it does not give dividend, but NAV prices appreciate? In this case the profit/loss will be treated as capital gains, right? Please clarify.
