On the auspicious occasions of Diwali, Dhanteras or Akshay Tritiya, people look to acquire wealth, and gold is considered the best investment for the same. Mostly people buy gold coins and jewellery as symbolic acquisition of wealth and for major investments, gold bars are also considered along with the jewellery and coins. Lately paper gold such as gold funds, gold ETFs, e-gold and Sovereign Gold Bonds are also gaining popularity because they are generally held in dematerialised form, eliminating the costs of safe storage, making charges as well as concerns related to purity, stagnation of fund etc. However, whenever you liquidate some of your investments by selling the gold items or paper gold, you attract tax liability. So, before investing, you should know how costly would be the liquidation in such assets. Physical gold: Gold is a capital asset. So, you need to pay capital gains tax at the time of selling gold items. If you sell the gold item withing three years from the date of purchasing it, the gain from the sale, if any, will be considered as short-term capital gain (STCG) and will be taxed at the rate you pay your income tax. In case you sell gold after three years from the date of purchase, any such gain will be considered as long-term capital gain (LTCG) and you will also get indexation benefit. Indexation cost is calculated by inflating the actual cost of purchase at the rate of inflation between the year of purchase and year of sale. You will have to pay 20 per cent tax on the gain if the sale price is more than the indexed cost of acquisition. Gold Monetisatoin Scheme: Along with capital gains tax, you have to bear the cost of storage and security issues involved in holding gold jewellery. Such issues may be resolved if you monetise your gold jewellery through the gold deposit scheme of the government. Under the Gold Monetisatoin Scheme (GMS), you have to deposit the gold and gold jewellery kept at your home in a Gold Deposit Account of a commercial bank (except RRBs) for various durations after getting the purity checked at a Collection and Purity Testing Centre. There will be some lock-in period depending on the length of the term for which you deposit the gold. By depositing the gold and gold jewelleries under the scheme, you may get rid of all the worries related to storing gold and the cost involved in it by transferring the risk to the government. Not only that, you will also get some interest on the gold that you deposit. After the lock-in period is over, you may come out of the scheme by converting the deposit in gold or cash. The good news is that the interests and capital gain, if any, are tax free under the scheme. So, through the GMS, you may solve all the drawback of physical gold, except the loss of making charges of jewellery, as the gold you deposit under the scheme is melted. Gold ETF, gold funds and e-gold: Although such investments remove all the drawbacks of holding physical gold, including that of making charges, but gains from redemption of such investments are taxed in the same way as physical gold. Sovereign Gold Bond (SGB): Investments in Sovereign Gold Bonds also relieve you from all the drawbacks of holding physical gold and also earn you interest on the investment amount, which is now 2.5 per cent per annum, payable half-yearly. The interest on the SGBs are taxable in the hands of investors. Currently, SGBs are issued for a tenure of 8 years with a lock-in period of 5 years. You have the options of getting the maturity value either in gold or in cash at the prevailing market rate of gold. Any capital gain at the time of maturity is tax free. However, if you transfer the SGB after the lock-in period but before the maturity, the LTCG on such transfer, if any, will attract 20 per cent tax after indexation.