Are You Investing In Gold This Diwali? Know The Tax Implications

Most Indians buy gold during festivals and other auspicious occasions. The choices are many – physical gold to even digital and paper gold. But all they come with their own sets of tax obligations, something which investors must be aware of before making investments in the precious metal
Diwali, Taxation, invest, Festival

Gold holds a special place in the hearts of Indians. It serves not only as a means to save for significant life milestones, such as weddings and retirement, but also stands as the preferred choice for jewellery.

On occasions like Dhanteras, Diwali, or Akshaya Tritiya, we embrace the tradition of acquiring gold for its auspicious significance. Despite our familiarity with purchasing gold, the intricacies of its taxation during transactions often elude us. The taxation of gold jewellery applies both at the point of purchase and sale.

So, as you embark on buying gold during this festive season, let’s find out how the precious metal is taxed.

Says Sanjiv Bajaj, joint chairman and managing director, Bajaj Capital: “Gold is a popular investment choice in India, especially during the festive season of Diwali. It is considered a safe and auspicious investment, and it can also provide a hedge against inflation. However, it is important to be aware of the tax implications of investing in gold before making a buying decision.”

Taxation While Buying Gold Jewellery

You can buy gold on cash or through various banking avenues, such as debit or credit cards or Netbanking. With the implementation of the Goods and Services Tax (GST), customers are obligated to pay a 3 per cent tax on the total value of the gold jewellery, inclusive of making charges.

Tax On Sale Of Gold Jewellery

When you sell gold for a profit, you may be subject to capital gains tax on the profit you earn from such sale.

Says Abhishek Soni, CEO, Tax2win, an income tax portal: Taxation on the sale of gold depends on the duration for which you have held it. It will be taxed either on the basis of short-term capital gains (STCG) or long-term capital gains (LTCG).”

Here’s how tax will be levied on STCG or LTCG, depending on the duration of holding.

LTCG Tax: According to Soni, if you sell gold and silver after holding them for more than three years, you may be subject to long-term capital gains tax.

“The tax on LTCG on gold and silver is subject to a fixed rate of 20 per cent along with 4 per cent cess, with the added advantage of indexation,” says Soni.

STCG Tax: If you sell gold and silver within three years of purchase, you may incur short-term capital gains tax. STCG is taxed according to your applicable income tax slab rate.

Tax On Gold Gifts

Gold received as a gift from blood relatives is usually exempt from taxation, while gold received as gift from non-relatives is subject to taxation.

Tax On Sale Of Sovereign Gold Bonds

Sovereign gold bonds (SGBs) are a substitute for holding physical gold. These are issued by the Reserve Bank of India (RBI) on behalf of the Government of India and come with a maturity of eight years. However, they can also be redeemed after the fifth year.

Says Bajaj: “SGBs are issued by the Government of India and are backed by physical gold. SGBs are not subject to LTCG tax if held till maturity. However, if you sell SGBs before maturity, the capital gains will be taxed as STCG or LTCG depending on your holding period.”

The taxation rules for SGBs are simple. Redemption on maturity is tax exempt. However, they will be subject to taxation if sold before maturity.

Says Soni: “Early redemption after five years will be considered under LTCG. LTCG on SGB is taxed at 20 per cent with indexation benefits or 10 per cent without indexation benefits. Interest earned on SGB is not tax-free and is declared under income from other sources.”

Gold Exchange-Traded Funds: Gold exchange traded funds (ETFs) are baskets of gold stocks that trade on stock exchanges. Gold ETFs are taxed in the same way as physical gold.

Other Tax Considerations

Making Charges: When you buy gold jewellery, you pay a making charge to the jeweller.

“The making charge is not considered part of the cost of acquisition of gold, and it is not tax-deductible,” says Bajaj.

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