Gold has been one of the best investment options, considering the continuous rise in its price over the past few years. Moreover, investments in gold offer an assured return over time. Investors looking forward to diversifying their profile find gold as a comparatively secured investment option. However, you need to pay incometax on gold purchases under certain circ*mstances.
Here's more on the different forms of gold and their income tax applicability!
Income Tax on Digital Gold in India
The concept of digital gold is not different from that of physical gold. The only difference is that you can buy them online and the insurer will store them in vaults on your behalf. Moreover, government bodies like RBI or SEBI have no authority to regulate this investment type.
If you are planning to buy digital gold, you should know that it attracts tax as per theincome tax rules for gold purchases. The tax on digital gold will attract 20.8% the same as physical gold and paper gold.
Income Tax on Physical Gold in India
The physical form of gold includes jewellery, gold biscuits, gold ornaments, gold coins, etc. For ages, the physical form of gold has been a popular investment option in India.
However, according to the Income Tax Act of India, you need to pay a 20% tax and a 4% cess on long-term capital gains (LTCG) while selling gold. Thus, the chargeabletax on gold is 20.8%. However, this rate is not applicable for short-term capital gains.
Returns from gold held for 36 months or more are termed long-term capital gains; returns from gold that are held for less than this period are termed short-term capital gains (STCG). In the case of STCG, the tax is charged on basis of your income slab.
Income Tax on Paper Gold in India
You can hold paper gold on paper but cannot acquire them physically. Gold Mutual Funds, ETFs, Sovereign Bonds, etc., are included in this type. The income you generate by selling units of ETFs or mutual funds is referred to as your capital gain. According to the rules regarding thegold tax in India, you are liable to pay a 20.8% tax on long-term capital gain gold sales. However, for gold held less than 3 years, the applied tax rate will be as per your income slab.
Income Tax on Gold Derivatives
The underlying asset for gold derivatives is gold itself and you can invest in these derivative contracts. You can buy derivatives from the commodities market. However, the tax applicability on these derivatives is similar to the commodity F&O trading tax rate.
You can also claim an expense against the income generated by selling gold derivatives and prepare a P&L account to calculate the taxable income. This is because the income you generate from such derivatives is considered non-speculative business income.
Income Tax on Gift or Inheritance of Gold
Indians inherit and gift gold to their loved ones on special occasions. However, if you are receiving gold as a gift or inheritance from family members or relatives, you can get anincome tax exemption on gold purchases.
As per Section 56(2) of the Income Tax Act, parents, spouses, or children gifting golden ornaments or jewellery are not applicable for income tax. On the other hand, if you receive it from any other person apart from relatives which exceeds Rs 50,000, you need to pay taxes. Such income is taxable as it is considered Income from Other Sources.
Furthermore, you can get tax exemption on gold jewellery received at your wedding. However, if you intend to sell these gifts, the government will impose the tax as per the capital gains tax rate.
Income Tax Rules on Gold for NRIs
As per the Income Tax Act, non-resident Indians can invest in physical gold, digital gold, paper gold, etc. However, NRIs are not allowed to invest in Sovereign Gold Bonds. Though the applicable tax rate on gold sales for NRIs is the same as the Indian residents, they need to pay TDS on Gold ETF or mutual fund redemptions. In the case of short-term returns from Gold ETFs and mutual funds, the TDS redemption is 30% and for long-term, it is 20%.
Final Word
Gold investment has been popular among Indians for years, but it is not a risk-free investment. The price of gold is affected by several economic factors and keeps on fluctuating like bonds and stock investments.
Like most investments, gold also comes under income tax applicability. However, you can be exempt fromincome tax on gold by following Section 54EE and Section 54F of the Income Tax Act.
