Gold investments: A look at tax you may have to pay on it
If you do invest in gold, then the thumb rule should be to hold it for a three-year period to minimise the tax burden
Gold is considered a safe haven investment. Investment in gold can be made in three ways – in physical form like a coin, bullion or jewellery, as paper gold like gold exchange-traded funds, gold funds or sovereign gold bonds and in the digital form. Many banks and mobile wallets like Paytm and PhonePe also offer customers the option of buying gold in digital modes.
How is physical gold taxed?
Jewellery or coins are the traditional and one of the standard ways of buying gold in India. Gold in physical form will attract 20% Long Term Capital Gains Tax (LTCG ) + 4% cess if it is sold after three years of holding. One can avail of the indexation benefit for LTCG. But if the gold is sold within three years then you will have to pay a Short term Capital Gains tax (STCG). The gains will be added to your gross total income and investor is taxed according to the applicable tax slab.
Tax on Gold ETFs and Gold mutual funds
Gold ETFs and gold funds have also become popular means of investment in gold. When you invest in paper gold such as gold ETF’s or gold mutual funds, you don’t touch or feel the gold but hold them in paper format. So, in appearance, they are just opposite of physical gold, but in taxation they are alike. If you redeem it in less than 3 years, the gains will be considered short term gains you will be taxed as per the applicable tax slab. If ETF or fund is sold after a holding period of 3 years or more then a long-term capital gains tax at 20% plus 4% cess with indexation benefits will be applicable.
Tax on Digital gold
Gains for digital gold is also on the lines of physical and paper gold. If held for more than three years then LTCG tax and if sold before the completion of three years, you will have to bear the burden of STCG tax.
Tax on Sovereign Gold Bonds
“Among all the forms, sovereign gold bonds take the cake when it comes to post-tax returns. The gain from bonds are not taxed on redemption after 5 years and also on maturity,” said Pankaj Mathpal, founder, Optima Money Managers.
Investors get two benefits when they invest in sovereign gold bonds — first, the return linked to gold price momentum plus an annual 2.5% interest. They comes with a maturity period of eight years, but you do have an option of redemption even after five years. If they are held for its full tenure and redeemed at the end of eight years, then capital gains are not taxable at all.
Similarly, if you exit after five years, then also you won’t have tax liability. But if you exit from SGB before the completion of five years, then you will be taxed as per the three-year rule. SGB sold in secondary market between the first year and the third year will attract STCG tax as per the income tax slab whereas if sold after three years but before the completion of five years then be ready to pay LTCG tax. The interest earned on SGB is taxed as per the applicable slab rate of the individual.
Should you invest in gold?
“Gold and stock markets have an inverse relationship. Therefore at the time of economic uncertainty stock markets crash and gold rises. To have a balance in the portfolio you should add gold to it,” said Gauri Chadha, tax expert.
If you do invest in gold, then the thumb rule should be to hold it for a three-year period to minimise the tax burden.
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