Investing in gold has been a very popular option for investors across the world. Many investors rely on gold as a safe option for stable returns. With increasing uncertainty in the stock markets, investors in gold have gained more prominence as a safe investment that generates consistent returns.
Types of gold investment
- Physical Gold: gold jewellery, coins, bars etc.
- digital Gold : Gold through mobile wallets like Paytm, Google Pay
- Paper Gold: Gold Bonds, Gold ETFs, Gold Mutual Funds etc.
- Buying Gold Through Derivatives Contract Commodity Market
Individuals invest in different forms of gold depending on their financial goals. However, different forms of gold are taxed differently. It is essential to be aware of the tax implications of various gold investments before you start investing.
Taxation on physical gold such as jewelry or coins depends on how long you have kept them. Capital gains from investments in physical gold are taxed on a long-term basis and a short-term basis.
If you sell gold within 3 years of purchase, you will be liable to short-term capital gains tax, whereas if you hold it after 3 years and sell it after that, you will have to pay long-term capital gains tax.
For the short term, capital gains will be added to your total taxable income and taxed at your income tax slab rate. For longer tenure, 20 percent and 4 percent cess and additional surcharge, if applicable, will be levied on your capital gains. Also, you will have to pay 3% GST on the purchase of physical gold and making charges in the case of jewelry. While selling physical gold, TDS will not be applicable but if you buy gold jewelry above Rs 2 lakh in cash, then TDS of 1% is applicable.
Digital gold is also taxed like physical gold and depends on the tenure of the investment. Long-term capital gains are applicable on selling gold after 3 years at the rate of 20 percent plus cess and surcharge. However, returns on digital gold held for less than 3 years are not directly taxed. Digital gold is becoming increasingly popular among investors because of its many benefits such as very low initial investment, can be bought online, no stress of storing physical gold.
Paper gold, which includes gold ETFs, gold mutual funds, and sovereign gold bonds (SGBs), is gold that is held on paper and/or physically. Gold ETFs and gold mutual funds are taxed similarly to physical gold, however, SGBs are taxed slightly differently. For Gold ETFs and Mutual Funds, LTCG is applicable if held for more than 3 years. The rate is also the same – 20% plus 4% cess and for investments less than 3 years, the profit is added to your taxable income and taxed as per your IT slab.
Sovereign gold bond
A sovereign gold bond earns an interest of 2.5 percent per annum, which is added to your taxable income and charged as per your slab. However, any profit you earn through SGB after 8 years is tax-free. SGBs have a lock-in period of 5 years, however, in case of premature withdrawal, different tax rates are applicable. In case of withdrawal after 5 years but before 8 years, LTCG tax will be applicable at 20% plus a cess of 4%.
Returns from gold derivatives are only available to trades and are taxed very differently. If the total turnover of the firm is less than Rs 2 crore, then returns from gold derivatives can be claimed as business income and taxed at the rate of 6 percent. This reduces the tax burden for such firms. However, if the turnover exceeds Rs 2 crore, it cannot be included as business income.
Gold as a gift
If gold is received as a gift from parents, siblings, or children, it is tax-free, but if you receive it as a gift from someone other than them, you will have to pay tax under your IT slab. Accordingly, taxes will have to be paid if the total gift amount reaches Rs.50,000. Gold as a gift from anyone below Rs 50,000 is tax-free. However, selling gold will attract the same tax as physical gold.