How different forms of gold are taxed

With the increasing uncertainty in the stock markets, investors in gold have gained more prominence as a safe investment that generates consistent returns.

While physical gold is the oldest form of gold investment, many new avenues of investing in gold have emerged in recent years. Digital gold, physical gold, paper gold and derivative contracts are some of the types of gold investments that are currently available.

While physical gold consists of jewellery, coins, bars, digital gold can be bought through mobile wallets. Paper gold includes gold bonds, gold ETFs, etc. whereas derivatives are when you buy gold in the commodity market.

Types of Gold Investments:

physical gold gold jewellery, coins, bars etc.

digital gold: Gold with mobile wallets like Paytm, Google Pay

paper gold: Gold Bonds, Gold ETFs, Gold Mutual Funds etc.

Buying gold through derivatives contract commodity market

Individuals invest in different forms of gold depending on their financial goals. However, different forms of gold are taxed differently. As such the tax implications of physical gold are not the same as that of gold bonds.

It is essential to be aware of the tax implications of various gold investments before you start investing.

physical gold

The taxation on physical gold like jewelery or coins depends on how long you have held them. Capital gains from physical gold investments are taxed on a long-term basis and a short-term basis.

If you sell gold within 3 years of purchase, you will be liable to short term capital gains tax, whereas if you hold and sell it after 3 years, you will have to pay long term capital gains tax.

For the short term, capital gains will be added to your total taxable income and taxed at your income tax slab rate.

For longer term, 20% and 4% cess and additional surcharge as applicable will be levied on your capital gains.

Also, you will have to pay 3% GST on purchase of physical gold and making charges in case of jewellery. While selling physical gold, TDS will not be applicable but if you buy gold jewelery of more ₹2 lakh in cash, then 1% TDS is applicable.

digital gold

Digital gold is also taxed in the same way as physical gold and depends on the tenure of the investment. LTCG is applicable on selling gold after 3 years at the rate of 20% plus cess and surcharge. However, returns on digital gold held for less than 3 years are not directly taxed.

Digital gold is becoming increasingly popular among investors because of its many benefits such as very low initial investment, can be bought online, no stress of storing physical gold.

paper gold

Paper gold, which includes gold ETFs, gold mutual funds and sovereign gold bonds (SGBs), is gold that is held on paper and/or physical.

Gold ETFs and gold mutual funds are taxed similarly to physical gold, however, SGBs are taxed slightly differently.

For Gold ETFs and Mutual Funds, LTCG is applicable if held for more than 3 years. The rate is also the same – 20% plus 4% cess. And for investments less than 3 years, the gain is added to your taxable income and taxed as per your IT slab.

for sgb

An SGB earns an interest of 2.5% p.a., which is added to your taxable income and charged as per your slab. However, any profit you earn through SGB after 8 years is tax free.

SGBs have a lock-in period of 5 years, however, in case of premature withdrawal, different tax rates are applicable. In case of withdrawal after 5 years but before 8 years, LTCG tax will be levied at 20% and 4% cess on profit.

gold derivative

Returns from gold derivatives are available only to businesses and are taxed very differently.

Returns from gold derivatives can be claimed as business income and can be taxed at 6 per cent if the total turnover of the firm is less than that. ₹2 crores. This reduces the tax burden for such firms.

However, if the business is over, it cannot be included as business income. ₹2 crores.

gold as a gift

If gold is received as a gift from parents, siblings or children, it is tax free. But if you receive it as a gift from someone other than him, then you will have to pay taxes as per your IT slab once the total gift amount reaches. ₹50,000 gold as a gift ₹50,000 from anyone is tax free.

However, selling gold will attract the same tax as physical gold.

Gold is one of the most popular forms of investment, but it is important for investors to know how their gold investments will be taxed. Now that we know the different taxation norms for different gold investments, you can choose which investment form suits you best.