Buying gold this Akshaya Tritiya? Know the tax rules for investing in physical, digital, paper gold

As investing in physical gold involves the cost to keep the yellow metal safely, many investors now prefer to invest in digital and paper gold instead.

gold, buying gold, gold investment, Akshaya Tritiya, gold jewellery, physical gold, digital gold, paper gold, taxation rules, long term capital gains, LTCG, short term capital gains, STCG, Sovereign Gold Bonds, SGBs
Buying gold is a tradition in India on the auspicious occasion of Akshaya Tritiya.

Buying gold is a tradition in India on the auspicious occasion of Akshaya Tritiya. Although buying gold jewellery is the old tradition, people avail the opportunity to invest in gold through other modes as well.

As investing in physical gold involves the cost to keep the yellow metal safely, many investors now prefer to invest in digital and paper gold instead.

Taxation

Not only safety and convenience, even taxation rules are different for different modes of investing in gold.

“Gold investments are classified into physical gold, digital gold and paper gold. Physical gold such as jewellery, bars and coins are taxed according to the holding period. For instance, the capital gains earned by selling physical gold within 36 months are short term capital gains (STCG). It is added to one’s taxable income and taxed according to the applicable income tax slab,” said Archit Gupta, Founder and CEO, Clear.

Gupta explains the taxation rules on different forms of gold investments –

Tax on Physical Gold

If one sells physical gold after a holding period of 36 months, the capital gains are called long term capital gains (LTCG). It is taxed at 20.8 per cent (including cess) with the indexation benefit. Indexation allows you to adjust the investment’s purchase price after accounting for inflation, effectively reducing the tax outgo.

Tax on Digital Gold

Digital gold includes gold purchased through mobile wallets. It is taxed similarly to physical gold. Short term capital gains on selling digital gold with a holding period under 36 months are taxed according to one’s applicable income tax slab. Long term capital gains on selling digital gold after a holding period of 36 months are taxed at 20.8 per cent (including cess) with the indexation benefit.

Tax on Paper Gold

Paper gold includes Sovereign Gold Bonds (SGBs), Gold ETFs and Gold Mutual Funds. Gold ETFs and Gold Mutual Funds are taxed similarly to physical gold. However, SGBs follow a different set of taxation rules. One earns an interest of 2.5 per cent per annum from SGBs, which is added to the taxable income and taxed according to the applicable income tax bracket. SGBs have an eight-year maturity period, and capital gains earned on redeeming the investment at maturity are tax-free.

SGBs may be prematurely redeemed after five years. The gains earned on redeeming SGBs between five to eight years are called long term capital gains. It is taxed at 20.8 per cent (including cess) with the indexation benefit.

One can purchase and sell SGBs over stock exchanges such as NSE and BSE. If SGBs are sold on the stock exchange within three years, the capital gains are added to one’s taxable income and taxed according to the applicable income tax slab. However, after three years, the capital gains earned by selling SGBs over the stock exchange are long-term and taxed at 20.8 per cent (including cess) with indexation benefit.

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