Planning to invest in gold? Tax rules for investing in physical, digital gold

There are many forms of gold where one can invest. Apart from physical gold, digital gold and paper gold are also in demand nowadays. Before investing in any form of the yellow metal, the investor should be aware of the tax liabilities associated with gold investments.

tax on sale of physical gold

Gold is often bought in physical form, mainly in the form of jewellery. In addition to jewelry, physical gold also consists of bars and coins. Gold coins are usually bought in denominations of 5 or 10 grams. All kinds physical gold are hallmarked.

As per the Income Tax Act, the sale of physical gold is subject to capital gains tax. Archit Gupta, Founder and CEO, Clear said that capital gains are taxed based on the type of gain, whether it is long-term capital gains or short-term capital gains. If you hold gold for more than 36 months prior to the date of sale, it is a long-term capital gain. Otherwise, it is a short-term capital gain, and will be taxed accordingly.

“You can take indexation benefit on the cost of acquisition of physical gold to get the value of long-term capital gains. A cess of 20 per cent and 4 per cent is levied on the income tax amount on such gains. So the total tax will be 20.08 percent. However, if you have sold gold within a shorter period i.e. before the expiry of 36 months from the date of purchase, include such short-term capital gains in your gross total income and tax the total taxable income as per regular tax. Calculate. Bracket,” Gupta explained.

Tax on sale of digital gold

Simply put, digital gold is a way to invest in physical gold. It is like regular gold, which can be bought online and stored in vaults insured by the seller on behalf of the customer. However, it is not regulated by any government body like SEBI or RBI.

Archit Gupta said that the tax treatment on digital gold is the same as that applicable on physical gold.

Tax on sale of sovereign gold bonds

sovereign gold bond (SGB) is a form of Digital Gold which is backed by the Government of India. RBI issues sovereign gold bonds on behalf of the government. SGB ​​was introduced in November 2015. As SGBs are backed by RBI, they are considered to be a safe option, due to which SGBs have seen huge growth among investors. The investor gets interest at the rate of 2.5 per cent per annum on half yearly basis.

The tax implications on the sale of SGB are as follows:

Redemption of SGB on Maturity

Any gain on gold bonds redeemed after eight years i.e. at maturity is exempt from tax.

Early redemption after five years

Any gain on the sale of SGBs after five years will be a long-term capital gain. And after indexation, such long term capital gains are taxed at 20 per cent.

SGB ​​sale through stock exchange

Any gain on the sale of SGBs through the secondary market is taxed on the basis of long-term or short-term capital gains. If the SGB is sold within 36 months of purchase, tax is paid based on the individual’s normal tax slab. Otherwise, 20 per cent and 4 per cent cess is levied on long-term capital gains.

Tax Impact on Sales of ETFs, Mutual Funds

According to Archit Gupta, the sale of other paper gold investments such as mutual funds and exchange-traded funds (ETFs) is taxed at the same rate as physical gold.