Many people purchase gold to save money for long-term goals. Most investors consider gold to be one of the safest forms of investment. In India, gold is extremely popular — not only as jewellery but also as an investment option. In FY2021-22, India imported $ 46.14 billion of gold.
Investments in gold are popular because the process is straightforward. However, in recent times, you can invest in different types of gold, and each gold type has a different tax rate. This article first discusses the different types of gold you can invest in and then the tax rates on gold.
What are the types of gold?
The following are the types of gold you can invest in.
- Physical gold includes coins, bars, and jewellery. Physical gold is any item of gold you can hold and touch.
- Paper gold consists of gold ETFs and gold bonds. This gold is purchased on the stock market and is deposited as units in your Demat account.
- Derivative gold contracts are gold bought on the commodities market.
- Digital gold is purchased from mobile wallets such as Google Pay and PayTm.
While there are many options to choose from, as an investor, you must make an informed decision based on the tax rates on gold.
What are the tax rates on gold?
1. Tax on physical gold
Physical gold is one of the most prominent choices among investors in India. Since physical gold is imported, all physical gold is subject to import duty. The taxes rates on gold are as follows:
- The import duty tax on gold is applicable. The import duty tax on gold has been increased from 7.5% to 12.5%.
- Physical gold is also subject to a 2.5% Agriculture Infrastructure Development Cess tax.
- When investing in gold, consider the Goods and Service Tax (GST). Currently, 3% GST is charged upon the purchase of physical gold.
- Physical gold is also subject to labour charges. The labour charges range from 8% to 35% on gold jewellery.
All these charges are applicable if you are purchasing gold. If you are selling physical gold, you will have to pay the tax deducted at source (TDS). TDS is applicable for all sales of gold. If you earn more than Rs 1 lakh from the sale of gold items, the total amount is subject to a TDS of 1%.
2. Tax on Digital Gold
The RBI issues the Sovereign Gold Bonds on behalf of the Government of India. Each bond represents 1 gram of gold. Since these are government-backed, they are relatively safer. If you sell the bond within three years, you have to pay short-term capital gain taxes.
The bonds are eligible for long-term capital gain taxes three years after the date of purchase. The amount will be subject to a 20% tax when the indexation benefit is in effect and a 10% tax otherwise. Sovereign gold bonds have a long maturity. However, only individuals will be subject to long-term capital gains, not trusts or HUFS.
There is no TDS applicable to this type of gold. However, a 2.5% per annum tax rate applies to sovereign gold bonds.
3. Gold Exchange Traded Funds (Gold ETFs)
Gold ETFs are mutual funds that are traded on the stock exchange as units. These often represent the underlying value of gold. Therefore, different mutual fund houses will issue different types of ETFs.
If you are investing in gold ETFs, remember the tax rates on gold are different. The tax rates on gold ETFs are as follows:
- GST: GST is applicable on brokerage and STT. 18% GST is applicable on gold ETFs.
- Short-term and long-term capital gains: Short-term and long-term capital gains on gold ETFs have the same tax rates as sovereign gold bonds. The amount will be subject to a 20% tax when the indexation benefit is in effect and a 10% tax otherwise.
No TDS applies to gold ETFs.
3. Taxes on Gold Derivatives
The taxes on gold derivatives are significantly different. The returns you get from gold derivatives can be claimed as business income. The tax rates on gold derivatives are 6%. However, you can only use this advantage if the total turnover of the business in that financial year is less than Rs 2 crore.
4. Gold as a Gift
Gold received from any close family members, including parents, siblings, spouses and children, is tax-free. However, if you get gold as a gift from people who are not your immediate family members, you will need to pay taxes on gold as per the IT slab.
The taxation payment will be applicable only if the amount is Rs 50,000 or more. The price of this item will be considered as ‘income’, and you will have to include this when you file your income tax at the end of the financial year. If you receive gold with a market value below Rs 50,000, it will be considered tax-free.
The tax rate on gold is lower than the tax on most of the other commodities in India. As the article has highlighted, different types of gold have different tax rates. While many people purchase physical gold as an investment, remember it is also subject to tax.
Tax rates on gold are not complicated. This article has highlighted all the taxes you have to pay and situations where your gold is tax-free.
If you need more information on the tax rates on gold in India, reach out to the professionals at Piramal Finance. You can also visit Piramal Finance to read more articles on personal finance, business finance, taxes, investment and more.