Introduction:

Gold has always been a favoured investment option for Indians for centuries, not only due to its cultural significance and stability but also because of its potential to generate high returns. In recent years, the government has introduced various gold investment options to cater to the diverse needs of investors. You can buy physical forms of gold, such as jewellery, coins, and bars or invest in digital gold through Sovereign Gold Bonds (SGBs) and Exchange-Traded Funds (ETFs).

But while gold is considered a haven, understanding the taxation on different gold investment avenues is crucial for informed decision-making. This blog explores the taxation aspects of various gold investment options in India. Keep reading.

• Physical Gold

Physical gold, valued for its tangible and emotional significance, occupies a prominent role in Indian culture. Investing in physical gold involves buying gold jewellery, coins, bars, etc. As an investor, you can buy physical gold directly from a jewellery shop or online.

Taxation on different forms of physical gold: ​​​​​​​

1. Gold Jewellery

Owning gold jewellery or ornaments is a common practice in India. From a taxation perspective, there is no income or wealth tax on buying gold jewellery for personal purposes. However, any income generated from the sale of jewellery may attract capital gains tax. The tax rate depends on whether the gold jewellery was held for a short term (less than three years) or the long term (three years or more).

If you have held your gold jewellery for less than three years, returns are considered short-term capital gains and are added to your annual taxable income. It then attracts tax as per the applicable income tax slab rate. If you’ve held your gold jewellery for three years or more, returns from it are considered long-term capital gains and are taxed at a 20% rate along with a 4% cess.

2. Gold bars and coins

Several individuals like to buy and hold gold bars and coins for investment. They attract lower making charges and are convenient to store and carry. Similar to gold jewellery, gold bars and coins held for personal use are exempt from wealth tax. However, if you decide to sell them, your profits may attract capital gains as per the holding period.

3. Gold ETFs

Gold ETFs, or Exchange-Traded Funds, are mutual fund units representing physical gold and are traded on the stock exchanges. The value of a gold ETF fluctuates as per the changes in the domestic gold price. One unit of a gold ETF represents one gram of physical gold in dematerialised form.​​​​​​​

Taxation of gold ETFs is similar to that of debt mutual funds. They attract the following types of taxes:

1. Capital gains tax

Gold ETFs purchased after 31 March 2023 are taxed like physical gold. It means that if you hold these ETFs for less than 36 months, returns will be added to your annual taxable income and taxed as per the applicable income tax slab rate. However, if you hold these ETFs for more than 36 months, returns will be taxed at a flat rate of 20% post-indexation.

2. Dividend Distribution Tax (DDT)

Like physical gold, gold ETFs don’t attract wealth tax. However, as an investor, you must be aware that dividend income from gold ETFs is subject to a Dividend Distribution Tax (DDT) at a flat rate of 10%.

3. Sovereign Gold Bonds (SGBs)

Sovereign Gold Bonds (SGBs) are government securities denominated in grams of gold. They can be redeemed in cash upon maturity, usually after eight years from the investment date. The Reserve Bank of India (RBI) issues SGBs from time to time on behalf of the Central Government. Apart from capital appreciation, SGBs provide interest income at a 2.5% per annum rate.

The income from SGBs is taxed as per the rules mentioned below:

1. Interest income

The interest income is added to the investor’s annual taxable income and is taxed as per the applicable income tax slab rate.

2. Capital gains

The capital gains from the redemption of SGBs are tax-exempt if they are held till maturity. However, if sold in the secondary markets, your profits may attract capital gains based on the holding period.

To conclude

Understanding the taxation on different gold investment options is essential for making informed investment decisions. Whether you prefer physical gold, Gold ETFs, or SGBs, being aware of the tax implications will help you optimise your returns and ensure compliance with the law.

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