Ready to invest in gold this Akshay Tritiya? Get clued up on tax implications

Akshay Tritiya 2024: Are you planning to invest in gold this Akshay Tritiya? If so, it's essential to understand the tax implications of your investment, whether you're considering physical, digital, or paper gold. Here is a comprehensive look at the taxation of different forms of gold investments in India:

Taxes on physical gold 

When purchasing or selling physical gold, including jewellery, coins, or bars, one encounters various tax considerations. Under the Income Tax Act, selling physical gold incurs a tax of 20 per cent, plus a 4 per cent cess on long-term capital gains (LTCG), resulting in an overall taxable rate of 20.8 per cent. However, short-term capital gains are exempt from this rate.

Gold held for over 36 months falls under long-term capital gains, while shorter durations attract short-term capital gains tax, aligned with the individual's income bracket.

Additionally, other tax aspects to consider include customs duty, which has recently been reduced to 10 per cent on gold bars, along with a 3 per cent GST and a 5 per cent Agriculture Infrastructure Development Cess (AIDC). Making charges, subject to a 5 per cent GST, also contribute to the overall cost. Tax Deducted at Source (TDS) at a rate of 1 per cent applies to purchases exceeding Rs 1 lakh.

Notably, exchanging gold jewellery involves nuanced GST considerations, where exchanging the same quantity incurs no GST on the gold itself, but vigilance is crucial to ensure accurate taxation during transactions.

Taxation on digital gold

Digital gold investments, resembling physical gold in taxation, adhere to the income tax regulations governing gold investments, with a tax rate of 20.8 per cent.

Taxation on SGBs

SGBs, issued by the RBI on behalf of the GOI, offer tax considerations similar to physical gold. Short-term capital gains are taxed according to the individual's income slab, while long-term gains after three years are taxed at 20 per cent, unless held till maturity, exempting them from taxation.

Taxation on other paper gold

Investing in paper gold instruments like Gold Mutual Funds and ETFs incurs a 20.8 per cent tax on long-term capital gains, with short-term gains taxed according to the individual's income slab.

Tax on gold inheritance or gift

Gifts or inheritance of gold by family members enjoy tax exemptions, while gifts exceeding Rs 50,000 from non-relatives are taxable. Wedding gifts of gold are exempt, but subsequent sales incur capital gains tax.

Tax for NRIs buying or selling gold

For Non-Resident Indians (NRIs), investments in physical, digital, and paper gold are allowed except for Sovereign Gold Bonds. The tax rate for NRIs mirrors that of Indian residents. However, Tax Deducted at Source (TDS) applies to Gold ETF or mutual fund redemptions for NRIs. The TDS redemption rates are 30 per cent for short-term returns and 20 per cent for long-term returns from Gold ETFs and mutual funds.

Choosing avenues like SGBs or gold ETFs through stock exchanges can mitigate tax burdens and additional costs associated with physical gold, say experts.
Understanding these tax intricacies is vital for prudent gold investments, whether for cultural adornment or financial diversification.