How are Sovereign Gold Bonds, gold jewellery and gold ETFs taxed? Know expert views (2024)

FAQs

How are Sovereign Gold Bonds, gold jewellery and gold ETFs taxed? Know expert views? ›

Taxability of Sovereign Gold Bonds (SGBs)

Gains earned on Gold ETFs bought after March 31, 2023 are taxed as per the income tax slab irrespective of the time when you sell them. Sovereign gold bonds are taxed at the slab rate when sold within three years of buying or at 20 percent when they are sold after 3 years.

When investors redeem gold bonds through the SGB route, they receive tax benefits. However, if investors sell their SGBs on the secondary market, their capital gains will be taxed at the current market rate. Interest earned on SGBs is taxed at the individual's applicable tax rate, similar to standard interest earnings.

Gold ETFs can be bought and sold in the secondary market using your existing trading and demat account with your stock broker. SGBs can be bought at the new issue period, which can be several times during the fiscal year. Outside that, SGBs are listed on the stock exchange, but the liquidity is limited.

Investors selling shares in commodity ETFs that hold physical gold or silver may be taxed at a long-term capital gains rate of 28% for those in tax brackets at or above 28%.

Downsides of gold ETFs include exposure to counterparty risk, annual fees, and the possibility the fund fails to properly track the price of gold. Another drawback is that you don't physically own the gold.

At least once a year, funds must pass on any net gains they've realized. As a fund shareholder, you could be on the hook for taxes on gains even if you haven't sold any of your shares.

If you purchase SGB in the primary issue, you get 2.5 percent interest paid semi-annually on the face value. But how much interest is received when you buy SGB from the secondary market? You will still get 2.5 percent interest if you buy SGBs from the exchange.

Capital gains in SGBs are exempt from tax if held till maturity, while the interest earned is taxable. Interest earned on FDs is subject to taxation based on the applicable income tax slabs. However, in the case of tax-saver FDs, you can avail deduction on investments of up to Rs 1.5 lakh from your taxable income.

A Non-Resident Indian cannot invest in Sovereign Gold Bonds as per the Foreign Exchange Management Act (FEMA), 1999.

Is it better to buy gold or a Gold ETF? ›

People may choose to invest in gold ETFs rather than physical gold because owning shares in a gold ETF is more attainable and easier than holding physical gold. ETFs backed by physical gold can provide that exposure and diversification with a lower entry cost than buying gold bars or coins as an individual investor.

Although both digital gold and SGBs have their own advantages and disadvantages, SGBs may be a better option overall. SGBs are easy to purchase as well as redeem, you can do so online itself. SGBs are also backed by the government of India, so it's certainly a safe investment option.

Unlike physical gold, SGBs do not carry any risk of theft or robbery for they are a digital form of gold, traded via demat accounts. SGBs provide an annual interest of 2.5% which give it an edge over investing in physical gold. The minimum investment in SGBs is one gram.

One other approach is, rather than selling the collectible, donating it to a qualified charity. With this route, you'll receive a charitable-giving related tax deduction rather than a capital gain. The exact amount of the deduction will vary depending on what the qualified charity does with your collectible.

Taxability of Gold ETFs

Gold EFTs purchased on or after April 1, 2023, would be considered a short-term capital asset, irrespective of their holding period, and any gain on the sale of such ETFs would be taxable at applicable slab rate.

The IRS taxes those gains the same way as ordinary income – using a marginal tax rate. Gold IRAs are subject to additional taxes and fees. The most common fee is the 10 percent early withdrawal penalty for those who cash in an IRA before 60. A collectible tax rate of 28% does not apply to IRA investments in gold.

The IRS taxes those gains the same way as ordinary income – using a marginal tax rate. Gold IRAs are subject to additional taxes and fees. The most common fee is the 10 percent early withdrawal penalty for those who cash in an IRA before 60. A collectible tax rate of 28% does not apply to IRA investments in gold.

Physical Gold: Physical gold is less susceptible to market fluctuations and is often viewed as a stable store of value, especially in times of economic uncertainty. Gold ETFs: While ETFs provide convenient market exposure, they are subject to stock market volatility, fund management risks, and tracking errors.

This is called the capital gains tax. And since gold is an investment asset, when you sell your gold and make a profit it is taxed as capital gains. Though, depending on how you held your gold, you will either have to pay taxes at the ordinary capital gains rate or at a general rate of 28%.

Since these ETFs are backed by physical gold, investing in them is generally just as safe as investing in gold coins and bars — at least in terms of protecting yourself from market volatility and inflation. In fact, depending on your definition of safe, physical gold ETFs may be safer than gold coins and bars.