Liquid mutual funds are taxed depending on your holding period.\r\rShort-term capital gains (STCG): If the holding period of liquid mutual fund units is up to three years (36 months), the profits are classified as short-term capital gains (STCG). STCG is added to your overall income and taxed as per your income tax slab.\rLong-term capital gains (LTCG): If the holding period of liquid mutual fund units is more than three years (36 months), the profits are classified as long-term capital gains (LTCG). LTCG is taxed at 20% with indexation benefit.