QUERY - Liquid bees for collateral taxation

I read someone saying that liquidbees have different taxation when you collateral to a broker?

Care to explain please…

@Quicko Can you.

When ETFs like Liquid Bees are kept as collateral security with the broker, you can use it as a margin and do F&O trading. Here are the tax implications:

  • Dividend Income - As per Budget 2020, 1st April 2020 onwards, dividend income is taxable in the hands of the investor at slab rates. Dividend Income in excess of Rs.5000 is subject to TDS under section 194K at 10%.
  • Capital Gains on Sale - taxable in the hands of the investor as per specific rates

When Liquidbees are used as collateral security for F&O Trading:

  • It is considered as business income. Profits are taxable at slab rates. Losses can be carried forward for 8 years to be set off against future profits. If Tax Audit as per Income Tax Act is applicable, Tax Audit Report should be filed by a Chartered Accountant
2 Likes

@Quicko CONFUSION –

When you say “It” is considered as business income, you are talking about F&O and not liquidbees right?

Also, Liquidbees provide us dividends as bonus units and not rupees. So, as long as we do not sell the units, do we still have to pay dividend tax?

  1. Yes. F&O Trading Income is considered as Business Income
  2. Dividend Income on mutual funds is different from income from the sale of units of mutual funds. IncomeTax should be paid at slab rates on Dividend Income. When you sell the units, it is considered as income from capital gains and is liable to tax as per special rates

Can someone provide further clarity on the issue of tax on Liquid bees dividend. Will no TDS be deducted as dividend is not credited as cash but as units? Further tax for this dividend units needs only to be paid at the time of sale of these units?

Section 194K mentions that payer should deduct TDS at 10% when income in respect of units of mutual funds is credited to the payee’s account exceeds Rs. 5000. This means that income not includes dividend paid in cash but also in form of units. Thus, TDS should be deducted even if dividend is paid in form of units. However, there is no clarification from the tax department yet.

Dividend income would be taxable in the year in which dividend is credited or received. Further, when you sell the units, it is considered as income from capital gains and is liable to tax as per special rates

For any further queries, write to us on [email protected]

I am sorry but I simply did not understand. If the dividends are subject to TDS prior to sale , then how can they be subject to capital gains tax as well at time of sale? I AM NOOB, so please explain.
I understood that since NAV remains contant, there will be no capital gains. Further accumulated dividend units will be subject to DDT. If TDS for dividend units is indeed going to be collected, how will get a account of this?

While TDS on dividend is the tax charged on dividend income, Capital Gains Tax is the tax charged on income earned from sale of units. Both the incomes are separately taxed.

TDS on dividend came into effect after DDT (Dividend Distribution Tax) was abolished. So FY 2020-21 onwards, DDT will not be charged and thus dividend income would be taxable in the hands of the investor. The Company would be liable to deduct TDS on the dividends paid.

The investor can claim the credit of such TDS as tax already paid while filing Income Tax Return. If the tax payable as per ITR is less, he can claim the refund of excess TDS deducted.

For any further queries, write to us on [email protected]