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  • 25 Feb , 2022
  • Blog

All You Need To Know About TAXES ON GOLD

It's not hard to see why gold is the best investment of all time. In times of economic uncertainty, investors have increased their buying and even hoarding of gold.

Prices have risen significantly in recent years as a result of market volatility. Investors buy gold because it is more trustworthy than other investments and currency, which is no longer linked to gold but continues to be influenced by it nonetheless.

Gold has proven itself as the most important heaven asset in a variety of countries, over people's innate love for jewelry; when prices fall and there are economic hardships people revert to gold for its purity and value.

Today, investors have more options to invest in gold than ever before. In the past, it simply meant purchasing physical gold.

Nowadays, one can choose from different options to suit their risk appetite; for example, digital gold is a form of investment that enables an investor to buy and sell contracts without having to hold or store any actual physical bars, then there's gold bonds for extremely long term investors, Gold ETFs which are managed by mutual fund managers &, etc.

However, this does not mean it is without peril, as many unforeseen tax implications may come into play later on down the line. We know that can be a time taking process which is not easy to digest on the actual income tax website.

So here we have summarized gold taxation on all different ways to invest in gold that you can save in, depending on your desired outcome and how much risk you’re willing to take.

  1. Physical Gold Taxation
  2. Paper Gold Taxation
  3. Digital Gold Taxation

 

1. Physical Gold Tax

 

                      

Physical gold bars, coins, necklaces, and other jewelry are subject to a 20% tax rate in addition to a 4% cess on long-term capital gain tax on their income if the profits they make from selling their primary residence.

If you sell your gold within 3 years of buying it, this is considered short-term of which the tax will be STCG  i.e Short Term Capital Gains Tax which as per the tax slab applicable to the assessee, while gold sold after three years is deemed long-term.

While you buy gold, different rates of Taxes are applicable. The following are the current rates for buying new gold jewelry:

  1. 10% Customs Duty on imported gold.
  2. 3% GST on the price of gold used in the jewelry.
  3. 5% GST on the making charges.

* Gold is also subject to Customs Duty since it is an imported commodity.

 

2. Paper Gold Tax

 

               

Assets such as Gold ETFs & SGB ( Sovereign Gold Bonds) are here termed as paper golds because you always have gold on paper & participate in the growth of prices of gold but you can't get physical gold.

Mutual Funds and ETFs held in your portfolio will be taxed in the same way as physical gold. But if you have a Gold Savings Fund, the profits are taxed differently!

Gold units sold within three years of acquisition are considered short-term capital gains. Those that go on to sell their gold savings funds after 3 years are considered long-term capital gains (if they’re held at least 36 months) on top of that there are additional charges which are termed as expense ratio plus an exit load depending on the ETFs.

Another form of paper gold is buying SGB a.k.a. Sovereign Gold Bond, which has a tenure of 8 long years (usually comes with a minimum of 5 years of lock-in period). However, you will receive 2.5% a year in interest.

Earnings from interest are categorized as other sources of income and are taxed accordingly. Any profits you make after investing in bonds for 8 years are tax-free.

In the event of a premature exit, different tax rates apply to bond returns, that is when redeeming bonds before maturity, then LTCG i.e. 20% tax + 4% cess + surcharge is applicable.

Neither GST nor TDS (Tax Deducted at Source) will apply to Sovereign Gold Bonds. However, the interest you receive on these bonds will be charged under the heading Income from other sources. The applicable rate will depend on your income tax bracket.

 

3. DigiGold Tax

 

                 

When it comes to Income Tax on selling digital gold in India, it enjoys the same rules and regulations as physical gold. This is because, on sale of DigiGold, capital gains tax would have been the same if you had sold physical gold.

Lastly, on the purchase, the digital gold GST rate is also the same as on physical gold.

 

Conclusion

Gold is renowned as an investment for its liquidity, higher growth than inflation & its ability to bounce off the ground in bad times like stock market crashes.

Unlike, in the case of Bonds & ETFs, which either require patience for 8 years (illiquidity) or paying expense ratios plus exit load. After all these limitations, you still need to pay capital gains taxes which definitely doesn’t sound good.

Gold indeed looks better in your hands than on paper plus delivery, only when needed, is like a cherry on the top. To participate in the glorious growth of gold, it isn’t necessary to take risks by storing it, that can be damaged or stolen. All the taxes on DigiGold are the same as physical gold so why not just go for DigiGold?

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