What is the Taxation on Gold

Like any other investment gold attracts tax. Gold is considered a capital asset. Capital assets are all those properties the IT department has defined as that and include shares, debentures, bonds, mutual fund units, immovable property, gold jewelry, etc. Tax applies on capital gains when you sell capital assets. Capital gain includes both profit and loss. If it is a loss you can set it against your profit and reduce your taxable gain. We discuss tax implications of holding gold in the physical form and indirectly through mutual funds, ETFs, bonds and so on.

Gold bars, coins, jewelry, E-Gold

Holding gold in the form of coins and bars or set in jewelry, apparel, utensils, furniture with or without other precious metal or precious stones attracts income tax. If held for less than 3 years resulting profit is counted as short term capital gain and a marginal tax rate as applicable in your tax slab is to be paid. If sold after 3 years it is treated as long term capital gain and a tax rate of 20% with indexation is applicable. Next time you buy gold coins, bars or jewelry, ask for the bill which retailers usually don't provide unless asked for.

Section 54 has provision to save tax money to be paid on capital gain by investing in bonds specified in section 54 EC or in a residential property according to section 54 F, within specified time limits of incurring the capital gain. Section 54 EC bonds are infrastructure bonds issued by NHAI and REC. they pay a low interest of 6% per annum, have a lock-in period of 3 years. Interest on the bonds is taxable and a maximum of Rs 50 lakhs can be invested in them in a year. However given the low returns from the bonds, unless your income falls in the higher tax brackets, you would make more money by paying tax and investing the remaining amount in equity related securities.

In addition Wealth tax of 1% per year is applicable on the amount by which net wealth exceeds the limit specified (presently Rs 30 lakhs). Net wealth is arrived at by deducting liabilities from assets of a person, excluding the exempted assets.

E-Gold is treated as physical gold for tax purposes.

SBI Gold Deposit

If physical gold has been deposited with the SBI under the Gold Deposit Scheme (GDS) you can claim tax exemption from Wealth Tax and Capital Gains Tax for the amount deposited. Income tax can also be saved on the interest earned on the deposit.

Gold Mutual Funds, ETFs

For tax purposes units of these are treated as that of non-equity mutual fund. Accordingly long term capital gain tax of 10% without indexation or 20% with indexation (whichever is lesser) is applicable and short term capital gain tax as per marginal tax slab is applicable. An advantage in mutual funds and ETFs is that selling after more than a year makes it a long term capital gain.


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