Gold investments have become increasingly important over the last few years as a result of the unstable global economy. Investors are buying gold to counter the risk of investing in other assets, as well as to get assured returns from gold in the long run. Although the gold market is prone to uncertainty and volatility, it remains one of the most important investments in India.
Moreover, there are various ways to invest, making gold a lucrative and easy investment. Surely, we all own gold in one way or another. After all, Indian households hold 11% of all the gold in the world! However, most of us are completely unaware of the regulations and tax implications of the different gold investments in India.
So, here’s all you need to know about how gold is taxed (including digital gold tax) in India!
What Are The Types Of Gold Investments?
A few decades ago, the only way to invest in gold was to buy it physically which was not very secure or convenient. However, in the digital age, you can be spoilt for choice – digital gold, physical gold, derivative contracts and paper gold are just some of the ways to invest in gold today. Let’s quickly take a look at each investment type before we check out how they are taxed in India.
- Physical gold is the most common method of purchasing gold in India. It can be purchased as jewellery, coins, gold biscuits or gold bars. The buyer is responsible for safely storing the gold in this case.
- Digital gold allows financial services companies (including Fello!) to sell gold to buyers over the internet. The best part is that the starting value of buying or selling gold is one rupee – talk about being affordable!
- Paper gold can be purchased through gold mutual funds, gold exchange-traded funds (ETFs), or sovereign gold bonds (SGBs). Here, buyers own a certified amount of gold “shares” that reflect the price of gold.
With that out of the way, let’s get into how each gold investment is taxed in India.
How Are Gold Investments Taxed In India (Including Digital Gold Tax)?
Physical Gold Tax
Most of us have some gold at home, which falls under this investment scheme. The tax on physical gold is determined by the duration it was owned. This means that the capital gains from the sale of gold can be either short-term or long-term. It all depends on how long the gold was held.
If the time between buying and selling the gold is less than three years, the capital gains will be classified as short-term. In this case, the capital gains are added to your total gross income for the year. They are then taxed at the rate that applies to your income tax bracket. Simple, right?
However, if the period between buying and selling the gold is longer than three years, the capital gains are considered long-term. They are then taxed at 20%, and an additional 4% surcharge and cess are added. The benefit here is that the cess is adjusted for the rate of inflation. The downside is that while purchasing gold physically, buyers must also pay the Goods and Services Tax (GST) on the item.
Digital Gold Tax
Digital Gold is treated the same as physical gold ownership when it comes to capital gain taxation in India. Here, too, the digital gold tax depends on whether the capital gains are short-term or long-term. And you thought the digital gold tax would be something mystical, didn’t you?
Paper Gold Tax
Gold ETFs and mutual funds are taxed similarly as physical gold ownership. Sovereign Gold Bonds (SGBs), on the other hand, are taxed differently. Sovereign Gold Bonds pay a 2.5% annual interest rate. It is added to the buyer’s gross income and taxed according to the applicable income tax level. A point to note is that SGBs have an eight-year maturity duration and capital gains received on maturity are entirely tax-free. #SlowAndSteadyForTheWin
The takeaway here should be that long-term capital gains, or simply LTCG, are taxed in India at a higher rate than short-term capital gains (STCG) – irrespective of the type of gold investment.
Two Loopholes For Long-Term Capital Gains On Gold Investments!
You are not alone in wondering if it’s sensible in losing one-fifth (that’s 20 percent!) of your long-term capital gains through gold taxation in India – be it physical, digital or paper gold! We have thought about it as well, and here are two “loopholes” we found within the Income Tax Act that may help you retain some of those gains!
Section 54F – By reinvesting the gold’s long-term capital profits in a residential property, the entire returns can be reported as tax-free.
Section 54EC – By investing long-term profits in certain qualified bonds within six months of the sale of gold, buyers are exempt from paying taxes on the gold returns.
However, what about the gold coin that was gifted to you on your first birthday, or the gold-plated necklace that has been passed down in the family for generations. Can that be taxed in India as well?
Taxation In India On Gold Received As A Gift Or Inheritance
Gold As A Gift – No taxes are applied on gold received as a gift from blood relatives. However, taxes are applicable if the gift exceeds Rs. 50,000 in value and is gifted by someone who is not a close relative.
Gold As Inheritance – Gold assets inherited from a blood relative do not warrant taxes. However, if assets inherited from someone other than a blood relative cross Rs. 50,000, gold taxes are applicable.
Simply remember that gifts and inheritances under 50K are OK. Anything above that and gold taxes are applicable!
Invest In Digital Gold Using Fello!
We hope this blog presented a clear view of gold taxation in India. From acting as a hedge against inflationary risks to requiring zero maintenance – us Indians love gold! But you don’t have to wait till the next Akshaya Tritiya to invest in gold.
Sign up for Fello and begin investing in digital gold right now!