Investing in gold in India, either in its physical form or via sovereign gold bonds (SGBs) and gold exchange-traded funds (ETFs), is not only a popular choice but also a beneficial strategy for portfolio diversification. However, understanding the tax implications associated with each is essential for a well-versed investment plan.
SGBs: SGBs offer a unique tax advantage. The interest income from these bonds is taxed according to the investor’s tax bracket. However, if the SGBs are held until maturity, the capital gains are exempt from taxation. Hence, from a tax perspective, SGBs are considered to be an efficient medium of investing in gold.
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SGBs offer interest at 2.5 per cent per annum, payable semi-annually, which is taxable as per the individual’s tax slab; however, TDS shall not be applicable. Its tenure is 8 years, and early withdrawal can be made from the 5th year onwards. Divakar Vijayasarathy, Founder and CEO of DVS Advisors, said, “When the bonds are held till maturity, it is tax-exempt. However, if it is sold before maturity, it is taxed as a capital gain. The period of holding for it to be considered as a long-term capital asset is 1 year, and is eligible for indexation benefit.”
Echoing similar views, Suresh Surana, Founder of RSM India, said, “Any gains arising sovereign gold bonds before their maturity would be taxable as long-term capital gains at 20 per cent (without Indexation benefit) or 10% (with Indexation Benefit).”
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Physical gold: Physical gold, which includes jewellery, coins, and bullion, is subject to capital gains tax upon sale. Vijayasarathy said, “Physical gold is a capital asset, and gain on its sale shall be taxed either as long-term or short-term gain depending on the period of holding. Suppose it is held for a period not exceeding 36 months. In that case, it shall be taxed as a short-term capital gain on sale and taxed based on the income slab of the individual, which may go up to 42.744 per cent (highest slab rate of 30 per cent + maximum surcharge based on total income of 37 per cent + Cess of 4 per cent), else, it shall be taxed as long-term capital gain with indexation benefit at a fixed rate of 20 per cent and cess of 4 per cent (and surcharge at 15 per cent may be payable additionally depending on the total income), and thus effective tax rate shall be as high as 23.92 per cent.”
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Gold ETFs: Gold ETFs combine the features of standard shares and the appeal of gold investments. These funds are listed on stock exchanges, enabling investors to invest in gold without worrying about storage and theft.
Surana said, “The gains arising from Gold ETFs would be based on their period of holding before the transfer of such gold. If the gold is held for a period of more than 36 months, the gains arising from the same would be considered as long-term and subjected to tax at 20 per cent (with indexation benefit), otherwise the same would be considered as short-term capital gains and subject to tax as per the marginal slab rates applicable to the investor.”
Additionally, Vijayasarathy said, “Gold ETFs purchased till March 31, shall be treated as and taxed like physical gold [as mentioned above]. However, ETFs purchased after March 31, shall be taxed as short-term capital gains irrespective of the period of holding at slab rates, which may go up to 42.744 per cent.”
While physical gold, SGBs, and gold ETFs are all desirable gold investment avenues, their tax implications vary greatly. Therefore, investors should not only consider factors such as convenience, security, and market trends but also the different tax liabilities associated with each gold investment option to make an informed decision.
