Gold Taxation – A Detailed Insight

Introduction

Everyone tends to make investments with the hard earned money to secure the future. Gold has proven itself as one of the best investment options time and again.

The Gold Market has a long history of being a stable, reliable asset for investors. This is why it is considered as one of the best investment options in different countries around the world. The value of gold has been increasing steadily since time immemorial, making it an excellent long-term investment option.

Today, investors have a lot of options for investing in Gold including buying and selling physical gold coins or bars, trading in gold futures contracts or ETFs, buying shares of companies that mine or produce gold, investing in mutual funds that invest in gold mining companies etc. and the new entrant Digital Gold. Digital Gold is just the Digital version of the physical Gold.

The investors can choose from different options depending upon the 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 and etc.

But all these investments come with the tax implications attached to them which will be applied later. It is tough to go through the complete tax process on income tax website.

So here, we are simplifying things for you by giving detailed tax implications on the different kinds of Gold investments you make.

• Physical Gold Taxation

• Paper Gold Taxation

• Digital Gold Taxation

Let's have a brief look on each point:

1. Physical Gold Taxation

Physical gold bars, coins, necklaces, and other jewellery 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 the physical Gold.

If the purchased Gold is sold within 3 years it is termed as short term gain and the short term gain tax is applicable as per the tax slab. And if the Gold is sold after 3 years of purchase it is termed as long term.

Above taxes are applicable on the sale of the purchased physical Gold but there are certain taxes that are also applicable when you purchase physical Gold. The various taxes applicable on purchase of physical Gold are:

10% custom duty on purchase of imported physical Gold

3% GST on the amount of gold used in the making of the product (jewellery, Gold bars and Coins).

5% GST on the making charges.

2. Paper Gold Taxation

Paper Gold refers to assets such as Gold ETF’s and SGB (Sovereign Gold Bond) because it is Gold on paper and cannot be converted into Physical Gold. The taxes on Mutual Funds and ETF’s are calculated in the same way as for the stocks held up in your portfolio.

But the taxes are calculated differently if you have Gold Saving Bonds. In case of Saving Bonds, if the Gold units are sold within 3 years of purchase, it is categorised under short term capital Gains and if the Gold units are sold after 3 years (more than a duration of 36 months) it is considered in long term Gain. There is also an additional charge levied termed as expense ratio plus an exit load based on the ETF’s.

In Case of SGB’s (Sovereign Gold Bond), they have a maximum validity of 8 years and usually come with a lock-in period of 5 years providing a saving interest of 2.5% but the interest earned from savings is taxable. If you continue the investment in bonds for a complete 8 years then it is 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) is applicable to Sovereign Gold Bonds. However, the interest earned on these bonds will be charged under the heading Income from other sources. The applicable rate will depend on your income tax bracket.

3. Digital Gold Tax

The income tax rules on the sale of Digital Gold are the same as applicable for the physical Gold. This is due to the fact that the capital gain on the sale of digital Gold is the same as that on the sale of Physical Gold. Also, the GST rates on sale and purchase of Digital Gold are same as that on physical Gold.

Conclusion

Gold is an investment with many advantages over other assets. It’s liquid, has higher growth than inflation and is immune to stock market crashes.

It’s not just that the gold you buy doesn’t need to be held for eight years (like bonds) or pay an expense ratio plus exit load (like ETFs). After all these limitations, you still need to pay capital gains taxes which definitely doesn’t sound good.

And it is indeed true that Gold always looks better in hand than on paper and if that is deliverable on a click of a button is a cherry on the cake. It is always not necessary to take risks of storing the Gold where it can be stolen or Damaged.

When Digital Gold at Bright DiGI Gold comes with the same taxation implication as of physical Gold then why not buy Digital Gold with Bright DiGi Gold.