There is tax on earnings from gold, know this before selling!
Old people keep gold in the form of jewelery or coins. Nowadays, apart from the traditional method, there are also options like Gold ETFs, Gold Savings Funds and Sovereign Gold Bonds... When and how is gold taxed? When is the income from gold considered as long term capital gain?
Gold is evergreen, ever glittering. Perhaps that is why the generation prior to us kept gold in the form of jewellery, coins or even biscuits. But our generation has many other options, apart from traditional means, to invest in gold. These include Gold ETFs, gold savings funds or sovereign gold bonds. In India, it is a ritual to exchange gold. Some people also inherit gold from their family. In this situation, it is important to understand how different types of gold are taxed. First off, let’s understand how physical gold or jewellery is taxed.
Whenever you sell physical gold like jewellery, coins or biscuits, the profits earned are subject to capital gains tax. This profit is considered as your earnings. The tax levied depends on your holding period. If you sell within 36 months of purchase, the profit will be considered as short term capital gains. This income is added to your total income. And then, depending on the tax slab applicable on you, you will have to pay taxes.
If you sell gold after holding it for more than 36 months, then, post indexation benefit, the receipts will be taxed at the rate of 20%.
Post 1st April, 2023, taxation rules pertaining to gold exchange traded funds and gold savings funds have changed. All gold ETFs purchased before 31st March, 2023 will be taxed like physical gold. They will be considered long term capital assets if held for 36 months or more. On the other hand, if the holding period is 36 months or less, the profits will be seen as short term capital gains. These will be added to the individuals income, and then, depending on the applicable tax slab, the individual will have to pay taxes.
For Gold ETFs or gold savings funds purchased after 1st April, 2023, the income from sale of their units will be treated as short term capital gains, irrespective of your holding period. This means that irrespective of when you sell it, earnings from this will be added to your total income, on which you will have to pay taxes per applicable tax slab.
Sovereign Gold Bonds, or SGBs are a good option for those individuals only looking to invest in gold. The Reserve Bank of India issues these SGBs on behalf of the government. Along with capital appreciation, SGB holders also get 2.5% of issue price as annual interest. This interest is fully taxable. Your income from interest will be added to your total income, and taxes will be levied accordingly.
SGBs come with a maturity period of 8 years. If you hold SGBs till maturity i.e. for 8 years, all income received upon its redemption will be tax free. SGBs can also be bought and sold in the stock market. However, if you sell them in the market, capital gains tax will be applicable.
If your aim is not to keep your gold in the treasury, but instead earn good returns on investment in gold, then SGBs are a better alternative. This is because they offer capital appreciation, along with interest income. The first tranche of SGBs recently matured. It offered its investors 11% annual returns. So, if you are looking to invest in SGBs, you can check out its upcoming issues in December and February. The first tranche will open for investment between 18th and 22nd December, while the second tranche will open between 12th and 16th February, 2024.