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No, Liquid funds return is not tax-free. Liquid funds are debt funds and one need to pay short term (Less than 3 years of investment) or long term (Above 3 Yrs of investment) tax.
The short team capital gain - Short team gains are added to the income and taxed at the income tax slab applicable to the investor.
The long team gain - calculated when the investment is done for more than 3 years; LTCP is 20% with indexation benefit.
Other question on the relevant topic:
Are liquid funds taxable? Are liquid funds taxable in India? Are liquid fund returns taxable? Is liquid fund interest taxable? Is liquid fund dividend taxable? How are liquid funds taxed?
Zerodha Trade@20