Gold Jewellery, Gold ETFs, Gold Mutual Funds received as gifts: How they are taxed

Tax on physical gold, gold ETFs and gold mutual fund units

Investments in Class I gold products are treated as capital assets under the income tax laws, so any gain on its acquisition cost is taxed under the head “capital gains”. However, those who carry on the business of gold as jewelers or bullion traders are taxed as business profits in respect of their investments in gold/jewellery for commercial purposes. However, gold jewelery and gold coins held by these individuals as personal investments are treated as capital assets just like other taxpayers.

The rate at which your profits on gold products are taxed depends on the period for which you have made the investment. If the product is sold after 36 months then the gain is treated as long-term capital gain and the cost of acquisition is taxed at a flat rate of 20% after applying the cost inflation index. If these are sold within 36 months, the gain is treated as short-term capital gain and taxed at the applicable slab rate to you.

Since many of us receive gold jewelery as a gift or as an inheritance, for the purpose of computing capital gains, the cost is taken as the cost of purchase to the previous owner who paid for it. Was. Gifts from certain relatives and inherited jewelery on the occasion of marriage are completely tax free at the time of its receipt. But gifts from other person are exempted only so long as the aggregate of all gifts received by you in any form during the year does not exceed rupees fifty thousand.

Once the sum of all gifts from all sources except the above gifts exceeds the magic figure ₹The entire 50,000 value of the gifts you receive becomes taxable in your hands. Though, gifts from relatives on the occasion of marriage and in the form of inheritance are completely tax free in your hands, but in future when you sell such jewelery you will have to pay capital gains tax.

For computing capital gains in such special cases, the holding period for capital gain is calculated from the date on which it was purchased by any previous owner. For example, for the gold jewelery gifted to you by your mother, which she received from her father at the time of her marriage and which was bought by your grandfather. ₹1 lakh, then ₹1 lakh will be charged to you as cost of acquisition at the time of sale.

If the jewelery was purchased before 1st April 2001, then the market value as on 1st April 2001 is to be taken as your cost and which is further increased by applying cost inflation index. As per the clear language of law, in case of jewelery received by way of inheritance/gift, indexation benefit is available only from the year in which you actually received it. However, some high courts have allowed the benefit of indexation from the year in which the previous owner actually purchased it for a consideration.

Investments in Gold Savings Funds as well as Gold ETFs are treated at par with regular gold and hence the holding period, tax rate and exemptions available are also similar to physical gold as discussed in the previous para.

Taxation of SGB and GDC

GDC issued against gold tender under Gold Monetization Scheme 2015 is not a capital asset under Income Tax laws, hence increase in value during its tenure is completely tax free on redemption/maturity of such deposits. The interest earned by you on these certificates is also exempt from income tax. However, the interest paid by the government on your SGB, which is also part of the gold monetization scheme, has to be included in your income and taxed at your slab rates.

The increase in the value of the SGB at the time of its redemption is tax-free, but if you sell these bonds on the open market, the gains made will be taxed as capital gains; Short term or long term depending on the holding period. The discount is available at the time of redemption whether you originally applied for the SGB or bought it on the open market regardless of the holding period.

How Can You Save on Long-Term Capital Gains?

If you have a long-term capital gain on the sale of any of the above gold products, you can avail exemption under section 54F, provided you buy or build a residential house within the period specified under section 54F of the Income Tax Act. Invest in sales. . If you do not make the full investment, the discount will be reduced proportionately.

I am sure by now you must have fully understood the tax implications of investing in various gold products. In my opinion if you are looking to invest in gold for long term, to take advantage of the rise in its price, SGB provides you a tax efficient opportunity to do so.

Balwant Jain is a tax and investment specialist and can be reached on Twitter at jainbalwant@gmail.com and @jainbalwant.