Understanding the Tax Implications of Investing in Gold: A Comprehensive Guide

Date of Published: September 13, 2023

Investing in gold is a compelling option for diversifying portfolio and safeguarding wealth. We can invest in gold in a number of different formats. Along with physical gold, paper gold and digital gold are other popular options.. But it’s important for investors to understand the tax implications of gold purchases. The tax treatment of gold can be different depending on the type of investment, holding period, and local tax regulations. In this comprehensive guide, we will understand the income tax rules for gold purchases.

Tax on gold purchases

There are two types of gold in which we can invest – Physical gold and Digital gold. The tax on these gold purchases varies from each other. Let’s see how!

Physical Gold

Indian families generally buy gold in physical forms like jewellery, bars, and coins. Physical gold investment is one of the popular forms of investment in India. According to the income tax act, the sale of gold leads to capital gain. The tax implications on physical gold are based on the period of holding. If a person holds gold more than 36 months before the selling date, it is known as a long-term capital gain. Whereas if a person holds gold for less than 36 months before the selling date, it is considered as short-term capital gain. The tax rates are different in both conditions. 

In the case of long-term capital gain, the gains will be taxed at 20% with a 4% cess on the income tax amount. So, the total tax chargeable will be 20.8%. However, in the case of short-term capital gain, the taxes will be charged as per the income tax slab rates. 

Digital Gold

Investing in digital gold is the same as investing in physical gold but here you can’t hold gold in the physical form. Sovereign gold bonds (SGB), Gold ETFs, Gold Mutual funds, etc. are all included in digital gold. But tax implications for SGB are different from the other types of gold. Apart from this, the income tax rules for gold purchase for others are the same as the physical gold. According to the rules, the total tax payment for long-term capital gains would be 20.8% whereas short-term capital gains would be charged as per the income tax slab rates.

In a sovereign gold bond, if the gold bond is redeemed after 8 years i.e. maturity then it will be exempt from taxes. However, if the gold bond will be sold through the stock exchange then the tax will be charged the same as the physical gold & other digital gold.

Gold for NRIs

Non-residents of India(NRIs) are Indians living abroad. The Income tax act allows NRIs to invest in physical gold as well as digital gold. But, they can’t purchase or invest in Sovereign Gold Bonds(SGBs). They have to pay TDS on gold purchases and redemption, even though the applicable tax rate on gold sales is the same for them as it is for Indian residents. The TDS redemption is 30% for short-term and 20% for long-term profits from mutual funds and ETFs that invest in gold.

Gold inheritance

Most of the Indian gold purchasers buy gold to inherit it to their loved ones. Well, if you are receiving any gold as a gift or inheritance from your family member then congratulations, you will get the income tax exemption on gold purchase.

Golden ornaments or jewels gifted by parents, spouses, or children are exempt from income tax under Section 56(2) of the Income Tax Act. On the other hand, if you receive gold from someone other than a relative which costs above Rs 50,000 then you have to pay taxes. Such income is taxable since it qualifies as income from other sources. 

Conclusion

Transactions like selling gold, or obtaining a loan for your gold have tax implications. While there are many Chartered Accountants who can help you find the tax implications, there are very few players who are the best in the industry which provide service to release pledge gold, help to repay gold loans, provide cash for gold, or hand hold to sell gold holdings. Valuegold is one of them. You can trust Valuegold for all these services to ensure a seamless transaction with someone you can trust.