Liquid funds are taxed like any other debt funds. If liquid funds are held for less than 3 years, then the gains will be calculated as Short Term Capital Gains (STCG) and will be taxed according to the investors income slab. Whereas, if they are held for more than 3 years, it will be calculated as Long Term Capital Gains (LTCG) and taxed at 20% along with the benefit of indexation.