Wealth Guide: Thinking of Investing in Gold? Must know these tax rules

There are different forms of gold where one can invest. It is the most attractive asset class for Indians. Apart from physical gold, digital gold and paper gold are also in demand these days. The investor should be aware of the tax obligations associated with investing in gold. Archit Gupta, Founder and CEO of Clear, shares his knowledge on gold investing and tax rules:-

Selling physical gold attracts capital gains tax

“Gold is considered capital property under the Income Tax Act. When an individual sells gold in physical form, such as gold jewelry, gold biscuits, gold coins, etc., capital gains tax applies. Capital gains are taxable depending on the type of gain, whether it is a long-term capital gain or a short-term capital gain. If you hold gold more than 36 months before the date of sale, it is a long-term capital gain. Otherwise, it is a short-term capital gain and tax will be due accordingly. You can take indexation benefits on the acquisition cost of physical gold to derive the value of the long-term capital gain. This gain is taxable at the rate of 20% plus a tax of 4% on the amount of income tax. Therefore, the total tax will be 20.08%,” said Archit Gupta.

“However, if you sold the gold within a short period of time, i.e. before the expiration of 36 months from the date of purchase, include those capital gains ​short-term into your total gross income and calculate tax on total taxable income according to the usual tax bracket,” Gupta added.

The tax on the sale of digital gold is the same as that on the sale of physical gold

“During the COVID-19 pandemic, digital gold has gained immense popularity. Digital gold offers security, convenience and purity, which is relatively less possible in physical gold. You can buy e- gold from metal trading companies (SafeGold or MMTC-PAMP) through various online platforms Various apps and websites like Paytm, Motilal Oswal, Google Pay etc. provide such online platforms for investors. metals trading companies store digital gold in a safe and secure locker on behalf of the investor.However, it is not regulated by any government agency such as SEBI or RBI.The tax treatment of digital gold is the same as that applicable to physical gold,” he explained.

Tax on the sale of sovereign bonds on gold

“The RBI issues the gold sovereign bonds on behalf of the government. It is the substitute for holding physical gold. You can redeem the bonds after eight years of maturity. However, you can redeem the bonds at the end of five years of purchase. In addition, the investor has the possibility of selling the sovereign bonds in gold on the secondary market. The list of gold bonds issued on stock exchanges. The tax implications of selling SGB are as follows:

SGB ​​redemption at maturity: Any gain on gold bonds redeemed after eight years, ie at maturity, is tax exempt.

Prepayment after five years: Any capital gain from the disposal of SGB after five years will be a long-term capital gain. And a 20% tax is payable on these long-term capital gains after indexation.

Sale of SGB on the stock exchange: Any gain on the sale of SGB in the secondary market is taxed on a long-term or short-term capital gain basis. If the SGB is sold within 36 months of purchase, the tax is paid based on the individual’s normal tax plate. Otherwise, a long-term capital gain is taxed at 20% and 4% on sale.

The investor receives interest at the rate of 2.5 percent per annum on a semi-annual basis. This interest income will be included in the item “Income from other sources” and taxed accordingly,” he explained.

“However, the sale of other paper gold investments such as mutual funds and exchange-traded funds (ETFs) is taxed in the same way as that of physical gold,” he concluded.

(Disclaimer: Opinions/suggestions/advice expressed here in this article are investment experts only. Zee Business suggests its readers consult their investment advisors before making any financial decisions.)