In India, people are always very fascinated about the Gold. Earlier, there were mainly physical gold like coins, jewelery, etc which were being held but now there are certain other modes of gold investments like digital gold, gold ETF etc have also become popular. In this article, we will be discussing these topics in details.
1. Taxation of Physical Gold Investment in India –
Physical gold that people buy from a jeweler which can be in the form of gold coins, bars or jewellery is considered as a Capital Asset. The Tax Rate on sale of a Physical Gold are as follows:
|Period of Holding||Classification of Assets||Tax rate|
|Less than 3 years||Short Term Capital Asset||As per Income Tax Slab Rates|
|More than 3 years||Long Term Capital Asset||20%|
Note – Tax is not levied on the entire sale proceeds but is levied only on the capital gain (i.e. sale amount – purchase amount) only.
(i). In case of Short-Term Capital Asset, Short Term Capital Gains = Sale Price – Cost of Acquisition.
(ii). In case of a Long-Term Capital Asset, Long Term Capital Gains = Sale Price – Indexed Cost of Acquisition.
Example: 1 – Miss Priya has gold coin of 25 gm which she had bought for Rs.70,000 one year ago and now she sells it at Rs. 1,20,000. Then the difference between the purchase price and the sale price of gold will be her profit i.e. 1,20,000 – 70,000 = 50,000.
This profit shall be taxed as STCG as per Income Tax Slab Rates of Miss Priya since the holding period is 1 year (i.e. less than 3 years).
Example: 2 – Rahul have acquired some ancestral gold & now he is planning on selling it. If the jewellery was purchased before 2001 then he can take the FMV of the jewellery as on 1.4.2001 as his purchase price or else he can take the actual purchase price of gold.
Suppose his parents had bought it on 5.7.1994 for Rs. 32,000 and they gave it to Rahul as a gift on 7.8.2006. The FMV of gold as on 1.4.2001 is 60,000. Now Rahul is planning to sell it on 12.7.2022 for Rs. 7,80,000. Since the FMV > purchase price, we will take 60,000 as the purchase price.
Now, this price will be indexed based on the values given in the cost inflation index to arrive at its indexed value as on 12.7.2022.Cost inflation index for year 2001 is 100 & Cost inflation index for the year 2022 is 331. So, Indexed Cost of Acquisition (Purchase Price) will be = Rs 60,000*331/100 = Rs 1,98,600.
Sale Consideration is Rs 7,80,000Long Term Capital Gain (since period of holding is > 3 years) = Sales Consideration – Indexed Cost of Acquisition i.e. Rs 7,80,000 – 1,98,600 = Rs 5,81,400.
2. Tax on Sale of Gold Monetization Scheme Bonds –
In Gold Monetization Scheme, the government issues bonds to its customers in exchange of physical gold deposit. The bond holder earns interest on these bonds and also gets the benefits of capital appreciation in the value of gold.
The interest earned on these bonds is exempt from the levy of Tax. Moreover, the capital appreciation due to increase in the value of gold is also tax exempt.
3. Tax on sale of Gold Exchange Traded fund –
Gold ETFs are units representing physical gold, which may be in paper or dematerialized form. These units are traded on the stock exchange and are taxed in the same way as gold jewellery (explained above).
4. Tax on sale of Sovereign Gold Bonds (SGB) –
SGB are issued by the Government of India that derives its value from the physical gold prices. It carries a specific interest rate @ 2.5% that is paid half-yearly & has lock-in-period of 8 years from date of investment. These bonds have the option of pre-mature redemption after 5 years.
Investors can purchase these bonds at a certain price from various post offices & banks & redeem it on maturity at the prevalent price of gold on that day. The minimum investment is 1gm. Investors can purchase SGB in denomination of grams only. No fractional purchase is allowed.
However, if investors purchase SGB through online mode Rs 50 per gram discount is available & also GST @ 3% on purchase is also not applicable.
Interest on these bonds is taxable as per the slab rates. If these bonds are redeemed on maturity – no tax is levied on the capital appreciation. However, in case the bonds are sold before maturity (i.e. after 5 years but before 8 years) – the entire profit is taxable as LTCG @ 20% with indexation benefit.
Benefit of Investment in Gold Digitally & through SGB:
|Cost||Demat account opening & transaction cost only. No GST at the time of Purchase & sale of SGB.||GST @3% at the time of Purchase & Sale & Transaction Cost. No other cost such as making charges, locker rent etc.|
|Risk||Low risk of loss in SGB||Minimal risk of loss in digital gold as compared to Physical gold|
|Affordability||Affordable, since minimum amount of investment is 1 gram & in multiples of per gram only||More affordable in digital gold, since minimum investment is Re. 1.|
|Taxation||Any Capital Gains arises on SGB at maturity of 8 years lock in period will be exempt from tax. However, if Investors sell their SGB after 5 years through Demat then LTCG @ 20% will apply after considering Indexation benefit. No Redemption of SGB can be made before 5 years from date of purchase.||Digital Gold is treated same as physical gold in case of taxation. Any gain on digital gold held for less than 36 months, will be taxable as STCG as per income tax slab rate, however LTCG @ 20% will apply after considering Indexation benefit after 36 months holding period.|
|Suited for||Investor want to diversify their portfolio & want to take less risk & feel more secure as it is regulated by RBI.||Investor want to diversify their portfolio & desire to invest in gold as it is considered as one of the traditional ways to invest.|
Summary of all the different category of gold as described above –
|Various forms of Gold||Description||Taxability of Gold|
|Physical Gold||The actual gold available in the form of jewellery, coins and bars||STCG tax on a holding period of less than 3 years at normal slab rate and LTCG Tax on gold held for more than 3 years is taxed at 20% with indexation.|
|Gold Monetized Certificate||Certificate issued by the bank on the deposit of actual physical gold||Both interest and capital gain on maturity is exempt. It has been specifically removed from the definition of capital asset.|
|Gold Exchange Traded Fund||Open ended mutual fund scheme that invests in gold bullion of 99.5% purity, which are tradable on the stock exchange||STCG tax on a holding period of less than 3 years at normal slab rate and LTCG Tax on gold held for more than 3 years is taxed at 20% with indexation.|
|Sovereign Gold Bonds||The gold bonds issued by the Government of India||
· Capital gain exempt on maturity if held for 8 years.
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