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Taxation in Gold

By Aayush Upadhyay

1st Apr 2022

3 mins read

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A typical Friday evening in college and a senior gets placed. The entire gang unanimously decides to jump on the senior anticipating a treat. The senior gets nervous. Did they see the package? Because well, that decides the “treat bracket”. College canteen for six figures, nearby restaurant for seven, and the best one in town for eight-figures.

This more or less is the concept of tax. As weird as it may seem, the government is picky the same way (at least figuratively) and would probably get a little more upset if you fail to provide the treat…tax…the tax.  

Enough metaphors, let's see the different terms to understand this treat government takes.

Indirect Taxes

Seen the fine print beside the rate on any commodity saying Incl. of all taxes? That, my friend, is what indirect taxes are. The government levies them on various goods and services. GST, to name one, would be the most famous example of the same.

Direct Taxes

It is the tax directly levied by the government on the taxpayer. This, unlike indirect taxes, can't be transferred and have to be paid by the intended taxpayer only.

Taxes on Physical and Digital Gold

Buying: Buying physical or digital gold attracts an indirect tax of 3% (CGST + SGST) on the net value (Price of the metal + making charges (only in case of physical gold)). Also, if jewellery worth more than ₹ two lakhs is bought via cash, additional 1 % TDS must be paid for the same.

Selling: The selling of physical gold can be taxed in two ways based on investment duration.

  • Short Term - If the bought gold is sold within three years of the investment, the profits are taxed according to the income bracket of the investor.
  • Long-term - If gold is sold anytime after three years, the profits are taxed at a flat rate of 20%. Furthermore, these transactions are charged 4% cess with indexation benefits.

Taxes on Gold ETFs and Mutual Funds

Buying: Buying Gold ETFs and funds may include certain brokerage charges and stamp duty.

Holding: The fund houses charge a tiny percentage (typically below 0.5%) as an expense ratio to maintain these ETFs and Funds.

Selling: Gold ETFs and funds are taxed similar to physical or digital gold.

Taxes on Sovereign Gold Bonds

Buying: Buying of SGBs involves no charges. Furthermore, an additional discount of ₹50/ gram is given on the issue price if the application process is carried out online.

Holding: Holding SGB provides a fixed interest rate (i.e., 2.5% p.a. credited semiannually). This income is taxed under the income slab of the investor.

Selling: SGB can be sold in three ways

  • Trading on the stock exchange - If the bond is held in a Demat account, it can be traded on the stock exchange after a date specified by the RBI. This is taxed as ordinary assets do while trading i.e., according to income bracket in STCG and flat 20% with indexation benefit or flat 10% without it for LTCG
  • After 5 yrs - The bonds can be sold anytime after 5 yrs (although the maturity is 8 yrs). The capital gains arising due to this sale are taxed under LTCG.
  • After 8 yrs (or maturity) - Any capital gain arising due to the sale of bonds after a period of 8yrs (i.e., after the bonds get mature) would attract no tax.

Taxes on Gifted Gold

Taxes gifted from relatives attract Capital Gain Tax, wherein the start date is considered the day when the metal was bought. These sellings may have indexation benefits starting from the date the seller received gold (some High courts have allowed the benefits to be dated from the day of purchase).

That was some information on various taxes to be paid on gold investments. We'll be back with another blog covering other financial tidbits. Till then, stay safe, invest safer!


What are indexation benefits?

Inflation often reduces the value of money over the years. Indexation is used to reflect this same effect on one's investments. This means the capital gains would be calculated on the inflation adjusted investment value.

What is an expense ratio?

The expense ratio means the percentage of investment paid to the fund house by the investors to manage their assets.

What is TDS?

As the name suggests, Tax Deducted at Source (TDS) collects the taxes at every source of income. It means that the payer must deduct this tax before transferring the amount to the payee.

What is a Cess?

Cess is an additional tax levied by the government for specific purposes. E.g., an additional cess of 4% on a pre-existing tax of 20% would result in a net tax of 20.8%.

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