Gold has been one of the best investment options, considering the continuous rise in its price over the past few years. Moreover, investments in gold offer an assured return over time. Investors looking forward to diversifying their profile find gold as a comparatively secured investment option. However, you need to know that holding gold would have certain income tax implications.
Here's more on the different forms of gold and their income tax applicability!
Nirmala Sitharaman, the Finance Minister of India has presented the budget on July 23rd 2024, where she had introduced certain changes in the tax rates on the long term capital gains on all financial and non financial capital assets to 12.5% from 10% and the tax exemption limit has been hiked to Rs. 1.25 lakhs. The short-term capital gains will attract tax at 20% instead of 15% for the FY 2024-25.
It should also be noted that the gold price has dropped ₹ 4000 per 10 gm after announcement of the Budget 2024.
The concept of digital gold is not different from that of physical gold. The only difference is that you can buy them online and the issuer will store them in vaults on your behalf. Moreover, government bodies like RBI or SEBI have no authority to regulate this investment type.
If you are planning to buy digital gold, you should know that it attracts tax as per the income tax rules for gold purchases. Returns from gold held for 36 months or more are termed long-term capital gains; returns from gold that are held for less than this period are termed short-term capital gains (STCG).
The tax on the sale of digital gold will attract 20.8% the same as physical gold and paper gold. In the case of STCG, the tax is charged on basis of your income slab.
The physical form of gold includes jewellery, gold biscuits, gold ornaments, gold coins, etc. For ages, the physical form of gold has been a popular investment option in India.
However, according to the Income Tax Act of India, you need to pay a 20% tax and a 4% cess on long-term capital gains (LTCG) while selling gold. Thus, the chargeable tax on gold is 20.8%. However, this rate is not applicable for short-term capital gains. In the case of STCG, the tax is charged on basis of your income slab.
You can hold paper gold on paper but cannot acquire them physically. Gold Mutual Funds, ETFs, Sovereign Bonds, etc., are included in this type. The income you generate by selling units of ETFs or mutual funds is referred to as your capital gain. According to the rules regarding the gold tax in India, you are liable to pay a 20.8% tax on long-term capital gain gold sales. However, for gold held less than 3 years, the applied tax rate will be as per your income slab.
The underlying asset for gold derivatives is gold itself and you can invest in these derivative contracts. You can buy derivatives from the commodities market. However, the tax applicability on these derivatives is similar to the commodity F&O trading tax rate.
You can also claim an expense against the income generated by selling gold derivatives and prepare a P&L account to calculate the taxable income. This is because the income you generate from such derivatives is considered non-speculative business income.
Indians inherit and gift gold to their loved ones on special occasions. However, if you are receiving gold as a gift or inheritance from family members or relatives, you can get an income tax exemption on gold purchases.
As per Section 56(2) of the Income Tax Act, instances of parents, spouses, or children gifting golden ornaments or jewellery are not liable for income tax. On the other hand, if you receive it from any other person apart from relatives which exceeds Rs 50,000, you need to pay taxes. Such income is taxable as it is considered Income from Other Sources. You can read more on this here.
Furthermore, you can get tax exemption on gold jewellery received at your wedding. However, if you intend to sell these gifts, the government will impose the tax as per the capital gains tax rate.
As per the Income Tax Act, non-resident Indians can invest in physical gold, digital gold, paper gold, etc. However, NRIs are not allowed to invest in Sovereign Gold Bonds as per RBI and FEMA norms. Though the applicable tax rate on gold sales for NRIs is the same as the Indian residents, they need to pay TDS on Gold ETF or mutual fund redemptions. In the case of short-term returns from Gold ETFs i.e. ETF’s held for a period of less than 36 months would be taxable at slab rates and long term gains would be taxed @ 20% flat. However, this rule is applicable until 31 March 2023. Finance Act 2023 has amended this to treat all gains from gold ETF as short-term in nature with effect from 1 April 2023.
Gold investment has been popular among Indians for years, but it is not a risk-free investment. The price of gold is affected by several economic factors and keeps on fluctuating like bonds and stock investments.
Like most investments, and as discussed in the article, gold also has its own income tax implications. However, you can be exempt from income tax on gold by following Section 54EE and Section 54F of the Income Tax Act.
Gold investment offers assured returns and different forms have distinct tax implications according to Indian income tax regulations. NRIs have specific tax considerations, while digital gold is taxed at the same rate as physical gold. Tax exemption is possible for gifts and inheritance of gold, subject to certain conditions.