Tax
If you're an investor, it's important to understand that how your gold returns are taxed depends on how you invest. Buying physical gold comes with different tax responsibilities than investing in gold bonds.
Gold ETFs, SGB, investor, Gold bond, Tax
Investing in gold has been popular in India due to its cultural significance and stability. It can diversify portfolios and reduce volatility. Since gold is needed on every social occasion, Indians should invest around 10 per cent to 15 per cent of their overall portfolio in gold. Gold is now available in three forms to invest in physical, sovereign gold bond (SGB), and gold exchange-traded funds (ETFs).
Tax On The Sale Of Physical Gold
Abhishek Soni, CEO, Tax2win, an income tax portal, said, “If you make a profit selling gold, you might have to pay capital gains tax on the earned profit. The taxation of gold sales is determined by how long you've held it—either as short-term capital gains or long-term capital gains.”
Long-Term Capital Gains (LTCG) Tax:
If you sell gold and silver after holding them for more than three years i.e. more than 36 months, you may be subject to long-term capital gains tax. The tax on LTCG on gold and silver is subject to a fixed rate of 20 per cent and a four per cent cess, with the added advantage of indexation.
Short-Term Capital Gains (STCG) Tax:
If you sell gold and silver within three years of purchase i.e. before 36 months, you may incur short-term capital gains tax. The STCGs are taxed based on the applicable income tax slab rate.
Tax On Sale Of SGBs:
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, too. The taxation rules are:
Redemption On Maturity i.e. After Eight Years Is Tax-Exempt
“If you redeem within the initial five years, it will be classified as LTCGs. LTCG from SGB is subject to a 20 per cent tax rate with indexation benefits or a 10 per cent rate without indexation benefits. The interest earned on SGB is not exempt from taxes and is reported as income from other sources,” Soni added.
Tax On Sale Of Gold ETF
The taxation of gold ETFs and gold saving funds purchased before and after March 31, 2023, is distinct, impacting their capital gains treatment:
Pre-March 31, 2023:
Treated and taxed similarly to physical gold.
Qualify as long-term capital assets if held for 36 months or more. Will be taxed at 20 per cent with indexation benefits.
Taxation occurs upon sale or redemption.
Post-March 31, 2023:
Taxed as short-term capital gains regardless of how long you hold it.
Taxation occurs upon sale or redemption.
Will be taxed at slab rates.
FAQs
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.
Should I invest in physical gold or a gold ETF? ›
According to the World Gold Council, gold returned an average of 7.78% per year between 1971 and 2022. 8 Physical gold storage and insurance fees for small investors are usually higher than 0.4% per year. Therefore, gold ETFs are an efficient vehicle for investing in gold.
Is gold ETF taxable in India? ›
Tax treatment of gold instruments:
| Form of gold | Rate of tax | Extra cost/ 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 |
1 more rowApr 6, 2024
If the price of gold goes up, then the capital appreciation will benefit the SGB and also the gold ETFs. The difference lies in the interest paid. For instance, SGBs pay an additional assured interest of 2.50% per annum, but such assured returns do not exist in gold ETFs.
Can I convert SGB to physical gold? ›
Does SGB give physical gold? No, you cannot claim physical gold when redeeming your SGBs.
What are the downsides of SGB? ›
Lack of Liquidity
SGBs have a fixed maturity period, and liquidity can be a challenge if you need to sell them before maturity. You may have to rely on the secondary market, which can have varying prices.
What is the disadvantage of gold ETF? ›
Disadvantages of investing in gold ETFs
Physical gold provides a higher level of security than Gold ETFs, as it eliminates counterparty risk. Gold ETFs may not perform as well as physical gold during times of economic uncertainty or geopolitical instability.
Can gold ETF be converted to physical gold? ›
The minimum quantity e-gold units can be converted into 1gm gold coin, and in denominations of 8gm, 10gm, 100gm and 1kg or in combinations of these multiples. 1 unit of e-gold is equivalent to 1gm of gold. General applicable charges are Rs. 200 for 8gm and 10gm, Rs.
Why is physical gold better than digital gold? ›
Physical gold refers to tangible gold assets in the form of bars, coins, or jewellery. Unlike digital gold, physical gold can be held, touched, and stored physically. It serves as a traditional and reliable investment option, offering a hedge against economic uncertainty and inflation.
What is the ETF tax loophole? ›
That means the tax hit from winning stock bets is postponed until the investor sells the ETF, a perk holders of mutual funds, hedge funds and individual brokerage accounts don't typically enjoy. The ETF tax loophole works only on capital gains, though.
Metals ETFs
The same applies to ETFs that trade or hold gold, silver, or platinum. As a collectible, if your gain is short-term, then it is taxed as ordinary income. If your gain is earned for more than one year, then you are taxed at a capital gains rate of up to 28%.
How much gold is not taxed in India? ›
Guidelines on Gold Jewellery Possession in India
| Particulars | Limit per person |
|---|
| Married women | 500 gms |
| Unmarried women | 250 gms |
| Men | 100 gms |
Feb 17, 2024
Unlike physical gold, SGBs are a safe investment option as it is dematerialised and, it is devoid of risks of loss involved in hazards of safekeeping or storing of gold, issues around making charges of jewellery and purity of gold purchased. 3.
Why SGB is better than digital gold? ›
In summary, the decision between Sovereign Gold Bonds (SGBs) and digital gold hinges on individual preferences and investment objectives. SGBs, backed by the government, offer a cost-effective means of investing in gold, albeit with a longer investment period and potentially less liquidity in the secondary market.
Is SGB a one time investment? ›
SGBs are issued with a maturity period of 8 years. Investors are allowed early redemption/encashment after 5 years. Alternatively, they can sell the bonds on the secondary market if they are listed from the date specified by the RBI.
Is it better to buy physical gold or gold stocks? ›
Physical gold often rises in value when the stock market is doing poorly, but the same is not true of gold stocks. Because it's tied to the stock market and individual companies, it's a less predictable and less stable investment in gold.
Is it better to buy physical or digital gold? ›
Buying and selling digital gold often has quicker transaction times than physical gold. Fractional Ownership: It allows for investment in gold in any amount, making it accessible and cost effective to a broader range of investors, including those with limited capital.
What type of gold holds its value best? ›
Gold Bars. This is the form of gold bullion that has the most value. Gold bars can range from 1 ounce to a few kilos. One can get as much value in a gold bar as one can afford.
Which form of gold is best to invest? ›
Sovereign Gold Bonds are the safest way to buy digital Gold as they are issued by the Reserve Bank of India on behalf of the Government of India with an assured interest of 2.50% per annum. The bonds are denominated in units of grams of gold with a basic unit of 1 gram. The maximum investment one can make is of 4 kg.
