Buying gold in India is an age-old tradition. The love for the yellow metal has not diminished over the generations. Many investors now prefer to invest in paper or digital gold instead of physical gold. The reason for this is mainly security and convenience. Even the taxation rules differ for different modes of investment in gold.
Gold investments are classified into physical gold, digital gold and paper gold. Jewellery, bars and coins fall under the category of physical gold. Digital gold includes gold purchased from mobile wallets.
Paper gold includes gold ETFs, gold mutual funds and sovereign gold bonds (SGBs).
Archit Gupta, Founder and CEO, Clear explained the tax rules on paper gold.
How is your paper gold taxed?
Tax on Gold ETFs and Gold Mutual Funds
Sleep ETFs and gold mutual funds are taxed in the same way as physical gold.
Tax on Sovereign Gold Bond (SGB)
sgb There are different taxation rules. Investors get an interest of 2.5% per annum from SGBs, which is added to the taxable income of the investor and taxed as per the applicable income tax slabs. The maturity period of SGB is eight years. Capital gains from SGBs, if held till maturity, are tax-free.
However, investors can prematurely redeem the SGB after five years. If you redeem the SGB between five and eight years, the gain is considered a long-term capital gain. It is taxed at 20.8% (including cess) with indexation benefit.
Investors can buy and sell sovereign gold bonds on the stock exchange. If the SGBs are sold before three years, the capital gains are added to the income of the investor and taxed based on the applicable income tax slab. In addition, the capital gains earned by investors on selling SGBs on the stock exchange after three years are longer term and are taxed at 20% along with indexation gains.
tax on physical gold
If one sells physical gold after the holding period of 36 months, the capital gain is called long term capital gain (LTCG). It is taxed at 20.8% (including cess) with indexation benefit.