Do you have a special affection for precious metals such as gold? If yes, then you do not necessarily have to invest in the physical gold only. You may even invest in their digital avatar as well. These include sovereign gold bonds (SGBs) and gold ETFs (exchange traded funds).
It is vital to note that the tax treatment of digital gold and physical gold is same while sovereign gold bonds (SGBs) being the exception. Another noteworthy distinction is that physical gold entails cost of making and storing unlike digital gold, which does not involve such costs.
Tax treatment of gold instruments:
Sovereign gold bonds (SGBs): These instruments have unique income tax treatment. If you sell them in the secondary market within three years of buying them, they are taxed at the slab rate.
However, if they are sold after three years of holding, they attract long term capital gains tax of 20 percent after indexation. And in case you hold them to maturity, they are not taxed at all.
It is vital to note that these bonds have a maturity period of 8 years with early redemption option available after 5th year. The annual income of 2.5 percent that these bonds offer are taxed as per the slab rate.
| Form of gold | Rate of tax | Extra cost/ income |
| SGBs | 20 % long term capital gains after 3 years | 2.5% income |
| Gold ETFs | Taxed as per slab (bought after march 31, 2023) | No charges/income |
| Gold coins | 20% long term capital gain after 3 years | locker charges |
| Gold jewellery | 20 percent long term capital gain after 3 yrs locker | locker + making charges |
Gold exchange traded funds (ETF): Earnings made on ETFs are taxed as per income tax slab regardless of when you sell them.
There are 17 gold ETF schemes with total assets under management amounting to ₹28,529 crore as on Feb 29, 2024, shows the AMFI data.
Physical gold (coins/ biscuits): Tax treatment of physical gold is similar to digital gold and taxed at long term capital gains rate of 20 percent plus 8 percent cess when sold three years after buying it. And when it is sold within 3 years, the gains are added to the income and taxed as per the slab.
These are better than jewellery items as they don't entail making charges. But since these are to be kept in safe custody, they involve cost to save such as locker charges.
Jewellery items: These entail a cost to store in a locker, but turn out to be more expensive than digital gold as well as gold coins because they also include making charges which are around 10-15 percent.
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Published: 06 Apr 2024, 12:50 PM IST
