Diwali remains an ideal time to invest in gold, which is no longer limited to just purchasing gold coins, bars, or jewellery. With digitisation, investing in gold through various forms, including digital gold, gold Exchange-Traded Funds (ETFs), and Sovereign Gold Bonds (SGBs), is possible.
Along with celebrating the festival season, gold can be essential for diversifying the investment portfolio. However, one should be well-versed with the tax implications when it comes to purchasing gold via different purchasing options.
As per the provisions of the Income-Tax Act (ITA), 1961, gold is regarded as a capital asset, and when one sells it, it becomes subject to capital gain tax.
Typically, physical gold, which includes jewellery, bars, and coins, is taxed based on the holding period. For example, the capital gains earned by selling physical gold within three years or 36 months are Short-Term Capital Gains (STCGs). It is added to an individual’s taxable income and taxed as per the applicable income tax slab.
However, in case an individual sells physical gold after a holding period of 36 months, the capital gains are referred to as Long-Term Capital Gains (LTCGs). It is taxed at 20.8% (including cess) with the indexation benefit.
Indexation allows an individual to adjust the investment’s purchase price after accounting for inflation, thereby reducing the tax outgo. Also, digital gold is taxed in a similar manner as physical gold, attracting capital gain tax.
Similarly, gold ETFs or gold mutual funds also attract STCGs and LTCGs. For instance, in case an individual holds an investment for over three years or 36 months, the LTCGs are taxed at 20% (plus cess) after indexation on gold ETF investments.
At the same time, in case the investor holds up to 36 months or less, it shall be treated as an STCG. The capital gain taxes are levied depending on the applicable tax slab.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.
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