How are Different Forms of Gold Investments Taxed
Investor confidence has risen as gold prices, which have been falling for a long time, have reached an all-time high with the expansion of Covid. Many are coming forward to invest in gold.
With the strict enforcement of income tax laws, gold transactions have naturally come under the tax net. In this case, investors need to be aware of the tax liability when selling gold for cash.
Four ways to invest in gold
1. You can buy coins or jewelry from jewelers.
2. Gold Mutual Fund or ETF.
3. Digital Gold.
4. Gold Bond.
The liability at the time of sale should be calculated according to the type of gold invested.
Coin and jewelry
Most people prefer to invest in coins and jewelry. It is also a popular investment method. The tax liability is based on how long it has been in possession and sold.
Short-term capital gains tax is payable on sales made after holding for less than three years. It should be calculated according to the tax slab applicable along with your income.
Long-term capital gains tax is applicable if the sale is made after holding for more than three years. That is, the indexation benefit is received for the profit earned. It is enough to pay 20 per cent tax on deducting inflation.
Gold Mutual Fund, ETF
The money that reaches the Gold ETF is invested by the ETF in Physical Gold. Mutual funds, on the other hand, invest in Gold ETFs. The tax on capital gains from both is similar to that outlined above.
Digital Gold
Digital gold is the new way to invest in gold. Its uniqueness is that you can invest even a small amount. Banks, mobile wallets and brokerage firms have all partnered with the likes of SafeGold to introduce digital investment. It can also be sold through the purchased app. Here again, the tax is the same as for physical gold, mutual funds and ETFs.
Gold Bond
From time to time, the Reserve Bank issues gold bonds to the Central Government at a price equivalent to one gram of gold. The bond is valid for eight years but can be sold after five years. You can buy and sell at any time through the stock market.
The special feature is that no capital gains are levied on the sale after the completion of the eight-year term. However, capital gains tax is applicable after five years or when it is sold through the stock market before maturity. Then the tax will have to be paid as explained above.
In addition to the appreciation of gold, investing in a gold bond yields an annual interest rate of 2.5%. The money will be credited to the bank account every six months. This amount is taxable according to your income based tax slab
