Tax on Gold and Real Estate Explained

Gold and real estate investments have been considered safe heaven investment options for years. However, the millennial generation thinks differently about them. This generation feels that apart from their use, other investment options offer better and competitive returns. Also, in the past few years, gold and real estate investments have given poor returns compared to what they used to give in the past. 

Investments across all segments come with their own risk and reward. So it’s never advisable to have all your investment pooled in one form of asset. If you want to consider diversifying by reducing the exposure in these investments, then you must be aware of these tax rules. 

Physical gold

In the case of physical gold investments, including gold bars and gold jewellery, a holding period of more than three years is considered long term and less than three years is regarded as short term.

Long-term capital gain on the selling of physical gold is taxable at 20% post indexation. Indexation is the benefit the Income Tax Act allows to increase the acquisition cost by factoring in the inflation over the years of holding. Health and education cess at 4% is added to this rate.  

Goods and Services Tax (GST) of 3% is applicable on the purchase of physical gold. Also, 1% tax will be deducted at source (TDS) if you sell physical gold of more than Rs.2 lakh.  

Digital gold

Digital gold includes gold ETFs (Exchange Traded Funds), gold mutual funds, etc. Gains from digital gold is taxed similarly to physical gold. Long-term capital gain at the rate of 20% (plus applicable cess) is levied on digital gold assets sold after three years. Also, indexation benefits will be available on the sale of digital gold.

Sovereign Gold Bonds (SGBs)

In the case of investment in Sovereign Gold Bonds, the investor earns annual interest, which will become taxable as ‘other sources income’ and taxed according to the individual’s slab rate. Most SGBs have a lock-in period of five years. If you sell SGBs after five years but before the maturity of eight years, any gain will be considered long-term capital gain and taxed at 20% plus applicable cess. 

If you redeem your SGB investment after eight years, then it is entirely tax-free.

Real estate investments

The holding period for the classification of real estate investment is two years. Real estate investment held for less than two years before transferring is considered short term, and more than two years is considered long term. Long-term capital gain tax on real estate investment is levied at 20% post indexation. At the same time, a short-term capital gain is added to other income and taxable according to the slab rate applicable to the investor. Also, 1% tax will be deducted at source (TDS) if you purchase real estate property exceeding Rs.50 lakh. 

You should thoroughly understand the tax implications before purchasing or selling an asset to make sure you are making a wise financial decision. 

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