Economy

How Gold, Digital Gold, Gold ETFs and Sovereign Gold Bonds Are Taxed


Traditionally, investors purchase different assets for prosperity on Akshaya Tritiya. The demand to buy gold or gold-related assets rises during this period. Gold is still considered as a safe-haven asset for Indian middle-class households.

Physical gold, gold bonds, gold ETFs or digital gold bear different taxes. If you are planning to invest in gold this Akshaya Tritiya, here are the tax liabilities you must know

Physical gold investment

Purchasing physical gold on any occasion is still the most common form of gold investment. Be it jewellery or gold coins, physical gold attracts a 3% Goods and Service Tax (GST) at the time of buying. Apart from that, investment in physical gold is also being taxed, depending on the holding period.

Physical gold held for less than three years, attracts short-term capital gains that will be added to investor’s total income and taxed at applicable slab rate.

“Taxation on investment in physical gold is subject to levy of long term capital gains tax (in case the period of holding is more than 36 months) at 20% along with applicable surcharge and 4% cess,” Prateek Goyal, principal associate at law firm MV Kini said.

Digital Gold

“While physical gold has always had its challenges with regards to its validity, storage etc, the need to buy gold through financial instrument will remain high amid resurgence of COVID. Investors can in the comfort of their home, invest in gold through sovereign gold Bonds, gold mutual funds and gold ETFs,” Yogesh Kalwani – head, investments at InCred Wealth.

Investors can purchase digital via popular digital wallets including Paytm, Amazon Pay, Google Pay and PhonePe, price starting from as low as Rs 1.

When it comes to taxation, digital gold ownership is treated similar to that of physical gold, said Prateek Goyal. It must be noted that buying digital gold will alos attract 3% GST over the cost of your gold, just like in case of buying physical gold.

Gold ETFs and Sovereign Gold Bonds

Gold ETFs and Sovereign Gold Bonds have gained popularity among investors over the last few years. Taxation on mutual fund returns and gold ETFs is similar to that of physical gold. “Gold ETFs held for more than three years attract long-term capital gains tax while short-term gains are added to the individuals’ net taxable income,” said Kalwani.

On the other hand, returns from Sovereign Gold Bonds are taxed differently. For investments in sovereign gold bonds, the interest income is treated as ‘income from other sources’ and taxed at applicable slab rate.

The returns on such paper gold investment are completely tax free after eight years.”However, in case of pre-mature exit from investments in sovereign gold bonds (although after 5 years lock-in period), all returns from such transactions are treated as long term capital gain and taxed at 20% along with applicable surcharge and 4% cess,” explained Prateek Goyal.

“Further the returns from investment in gold derivatives can be treated as business income and under the presumptive scheme of taxation, 6% of the turnover shall be payable as tax, provided the total turnover from the concerned business is limited to less than Rs 2 crore in that year,” Goyal explained.

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