Taxation On Gold: SGB Vs Gold ETF Vs Physical Gold

If you're an investor, it's important to understand that how your gold returns are taxed depends on how you invest. Buying physical gold comes with different tax responsibilities than investing in gold bonds.
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Investing in gold has been popular in India due to its cultural significance and stability. It can diversify portfolios and reduce volatility. Since gold is needed on every social occasion, Indians should invest around 10 per cent to 15 per cent of their overall portfolio in gold. Gold is now available in three forms to invest in physical, sovereign gold bond (SGB), and gold exchange-traded funds (ETFs).

Tax On The Sale Of Physical Gold

Abhishek Soni, CEO, Tax2win, an income tax portal, said, “If you make a profit selling gold, you might have to pay capital gains tax on the earned profit. The taxation of gold sales is determined by how long you've held it—either as short-term capital gains or long-term capital gains.”

Long-Term Capital Gains (LTCG) Tax:

If you sell gold and silver after holding them for more than three years i.e. more than 36 months, 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 and a four per cent cess, with the added advantage of indexation.

Short-Term Capital Gains (STCG) Tax: 

If you sell gold and silver within three years of purchase i.e. before 36 months, you may incur short-term capital gains tax.  The STCGs are taxed based on the applicable income tax slab rate.

Tax On Sale Of SGBs: 

It is the substitute for holding physical gold. You can redeem the bonds after eight years of maturity. However, you can redeem the bonds at the end of five years of purchase, too. The taxation rules are:

Redemption On Maturity i.e. After Eight Years Is Tax-Exempt

“If you redeem within the initial five years, it will be classified as LTCGs. LTCG from SGB is subject to a 20 per cent tax rate with indexation benefits or a 10 per cent rate without indexation benefits. The interest earned on SGB is not exempt from taxes and is reported as income from other sources,” Soni added. 

Tax On Sale Of Gold ETF

The taxation of gold ETFs and gold saving funds purchased before and after March 31, 2023, is distinct, impacting their capital gains treatment:

Pre-March 31, 2023:

Treated and taxed similarly to physical gold.
Qualify as long-term capital assets if held for 36 months or more. Will be taxed at 20 per cent with indexation benefits.
Taxation occurs upon sale or redemption.

Post-March 31, 2023:

Taxed as short-term capital gains regardless of how long you hold it.
Taxation occurs upon sale or redemption.
Will be taxed at slab rates.

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