Gold is making waves as its price has risen by over 50% in a year and at a CAGR of 30% in 3 years, as per the data available on MCX. The yellow metal’s demand in the festive season remains high in India. People buy gold in the form of jewellery and investment, both.
Milin Bakhai, Partner, Direct Tax, N. A. Shah Associates LLP, says, “Beyond its traditional role, gold is considered a safe-haven investment. Over the time, the modes of investment in gold have evolved significantly from traditional bullion/jewellery to Gold ETF/Sovereign Gold Bonds/Gold Mutual Funds.”
In whichever form you invest in gold, when you sell it, you need to pay income tax on the gains, barring gains from SGBs on maturity. But how will your tax be calculated on capital gains from different forms of gold? Read what the tax rules say-
Tax on buying and selling gold
When you buy gold, there is no income tax. But a GST of 3% is levied on the purchase of gold and 5% GST is levied on making charges, but when you sell gold, you need to pay income tax.
Bakhai said that the tax treatment of gains from the sale of physical gold has gone through changes. “The tax treatment of gains on the sale of physical gold and other forms has undergone significant changes with the amendments brought in by the Finance Act 2024 from 23rd July 2024.”
One of the key changes is that there is no indexation benefit on the gains from physical gold, gold ETFs, gold mutual funds or SGBs in the secondary market.
How gains from different forms of gold are taxed
Tax on gains from physical gold
As per income tax rules, if you hold physical gold for less than or equal to 24 months, you have to pay short term capital gains (STCG) tax on gold, which is levied at the slab rate.
If the holding period is more than 24 months, a flat 12.5% tax is applied, and the seller won’t get the indexation benefit.
Tax on gains from ETFs and gold mutual funds
Gold exchange traded funds invest in gold of high purity. Gold mutual funds invest in gold ETFs.
If the holding period of gold ETFs and gold mutual funds is less than or equal to 12 months, STCG tax will be applied on the gains. In such a situation, the gains will be taxed at slab rates of the taxpayer.
If the holding period is more than 12 months, the gains will be taxed at 12.5% flat without the indexation benefit.
Snapshot of the taxability of different forms of gold investments is summarized in below table (as per Milin Bakhai)
Tax on gains from Sovereign Gold Bond (SGB)
SGBs are central government securities issued by the Reserve Bank of India (RBI). These bonds invest in 999 purity of gold and have a maturity period of 8 years.
Other than the benefit from gold price appreciation over the years, SGBs typically provide 2.5% annual interest on the initial investment.
SGBs are also available for early redemption after the fifth year from the date of issue. They can then be tradable on exchanges if held in the demat form.
If the investor holds SGBs till maturity, there is no income tax on the gains.
However, if SGBs are sold in the secondary market before maturity through a stock exchange, the seller has to pay STCG and LTCG.
If the holding period is less than or equal to 12 months, gains will be taxed at slab rates.
If the holding period is more than 12 months, a 12.5% tax will be applied, and the seller won’t get any indexation benefit.
Milin Bakhai, Partner, Direct Tax, N. A. Shah Associates LLP, says, “Beyond its traditional role, gold is considered a safe-haven investment. Over the time, the modes of investment in gold have evolved significantly from traditional bullion/jewellery to Gold ETF/Sovereign Gold Bonds/Gold Mutual Funds.”
In whichever form you invest in gold, when you sell it, you need to pay income tax on the gains, barring gains from SGBs on maturity. But how will your tax be calculated on capital gains from different forms of gold? Read what the tax rules say-
Tax on buying and selling gold
When you buy gold, there is no income tax. But a GST of 3% is levied on the purchase of gold and 5% GST is levied on making charges, but when you sell gold, you need to pay income tax.
Bakhai said that the tax treatment of gains from the sale of physical gold has gone through changes. “The tax treatment of gains on the sale of physical gold and other forms has undergone significant changes with the amendments brought in by the Finance Act 2024 from 23rd July 2024.”
One of the key changes is that there is no indexation benefit on the gains from physical gold, gold ETFs, gold mutual funds or SGBs in the secondary market.
How gains from different forms of gold are taxed
Tax on gains from physical gold
As per income tax rules, if you hold physical gold for less than or equal to 24 months, you have to pay short term capital gains (STCG) tax on gold, which is levied at the slab rate.
If the holding period is more than 24 months, a flat 12.5% tax is applied, and the seller won’t get the indexation benefit.
Tax on gains from ETFs and gold mutual funds
Gold exchange traded funds invest in gold of high purity. Gold mutual funds invest in gold ETFs.
If the holding period of gold ETFs and gold mutual funds is less than or equal to 12 months, STCG tax will be applied on the gains. In such a situation, the gains will be taxed at slab rates of the taxpayer.
If the holding period is more than 12 months, the gains will be taxed at 12.5% flat without the indexation benefit.
Snapshot of the taxability of different forms of gold investments is summarized in below table (as per Milin Bakhai)
Tax on gains from Sovereign Gold Bond (SGB)
SGBs are central government securities issued by the Reserve Bank of India (RBI). These bonds invest in 999 purity of gold and have a maturity period of 8 years.
Other than the benefit from gold price appreciation over the years, SGBs typically provide 2.5% annual interest on the initial investment.
SGBs are also available for early redemption after the fifth year from the date of issue. They can then be tradable on exchanges if held in the demat form.
If the investor holds SGBs till maturity, there is no income tax on the gains.
However, if SGBs are sold in the secondary market before maturity through a stock exchange, the seller has to pay STCG and LTCG.
If the holding period is less than or equal to 12 months, gains will be taxed at slab rates.
If the holding period is more than 12 months, a 12.5% tax will be applied, and the seller won’t get any indexation benefit.
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