Regardless of the form in which you hold gold, you are required to pay income tax. People commonly hold gold in various forms, such as gold ETFs, digital gold, jewelry, and bonds.
Many assume that only gold held as an asset is taxable. However, even when you sell gold, you must pay taxes on any gains.
Here’s a breakdown of long-term and short-term capital gains taxes, tax exemptions, and the tax rules applicable to Non-Resident Indians (NRIs):
Gold ETFs: Long-term capital gains (LTCG) on gold ETFs are taxed at 12.5%. The tax exemption limit is ₹1.25 lakh in a financial year; gains above this threshold are taxable.
Unlike equity shares, where the LTCG period is one year, for gold ETFs, it is two years. Short-term capital gains (STCG) are taxed according to the investor’s income tax slab.
Jewelry and Coins: Many individuals in India invest their wealth in gold jewelry, coins, and biscuits. Gains on gold held for more than 24 months are categorized as LTCG and taxed 12.5%.
Gains realized within 24 months are classified as STCG and taxed based on the investor’s income tax slab.
NRIs: Non-resident Indians can invest in gold in various forms, including jewelry, coins, biscuits, and digital gold, but they cannot invest in gold bonds.
The tax rates that apply to NRIs are the same as those for residents in India. However, Tax Deducted at Source (TDS) applies to gold ETFs.
Digital Gold: This has become a convenient way to invest online in gold. The tax treatment for digital gold is similar to that of physical gold.
The Income Tax Department imposes a tax of 12.5% on gains from digital gold held for more than 24 months. Short-term gains are taxed as STCG based on the investor’s income tax slab.
Gold Bonds: Gold bonds have a unique advantage in that capital gains realized after maturity are tax-free. However, the interest earned during the investment period is subject to income tax at 2.5% per annum, according to the investor’s income tax slab.
Gold Derivatives: Gold derivatives traded in the commodity market do not incur capital gains tax. Instead, they are treated as non-business income and taxed based on the investor’s applicable income tax slab on the net profit.
Tax Exemption on Gifts: Gold received as a gift during marriage is tax-free. However, capital gains tax will be applicable if it is later sold.
While gold is generally considered a stable investment, it is crucial to understand the associated tax rules thoroughly. Awareness of the tax implications can help you maximize the benefits of gold investments.