During the Navratri festive season, gifting gold or other precious metals is considered auspicious. However, it’s essential to know that an investment in gold could attract taxes up to 30 percent.
Read More:-DA Hike Latest News: Odisha CM announces 4% hike in dearness allowance for state govt employees
Exchanging gifts during festivals has remained an integral part of different festivals across India. Over the years gold has been a preferred choice of investments and gifting, especially during festive seasons. During Navratri, cultural importance of gifts is usually witnessed by the exchanging of precious metals, such as gold and silver. India holds gold in high esteem because of its eternal splendour, natural purity, and unparalleled durability.
However, before gifting or investing in gold, it’s important to consider the tax implications that come with it. Before delving into the intricacies of taxes imposed on investments in gold, you should understand capital gains tax, which is closely associated with assets like gold.
Read More:-9 money management lessons to learn from 9 days of Navratri
Capital Gains Tax
Investments in gold and silver can attract Capital Gains Tax (CGT) depending on the duration of the investment. This tax applies to the profit arising from selling of gold or silver. The holding period dictates what type of gain it is. In case, you sell either gold or silver within three years of purchase, the profit is classified as Short-Term Capital Gain (STCG) and is levied at 15 percent.
If you sell after holding the gold items for three years or more, you will be taxed at a fixed rate of 20 percent as long-term capital gains (LTCG) tax, with the benefit of indexation.
Indexation Advantage
Indexation is a technique that allows you to offset your capital gains tax liability against the inflationary impact on the cost of the investment. It means that a tax is levied on the net profit that is not eroded by inflation and this advantage can be beneficial during gold or silver purchases.
What are the tax implications on gold investments?
Popular gold investment options include Sovereign Gold Bonds (SGBs), Gold Exchange Traded Funds, and physical gold. The tax implications on these investments depend on the nature of investment.
Read More:-‘Emergency Alert’: Here’s why many Android, iOS phones are ringing loudly with a flash message
Tax on Sovereign Gold Bonds (SGBs)
SGBs offer tax benefits as no Long Term Capital Gains Tax (LTCG) is charged when the bond is held until maturity. Selling or redeeming SGBs within three years classifies the capital gains as STCG and is taxed at applicable income tax slab. SGBs attract interest that is taxed based on your tax bracket and no TDS is levied on the interest accrued. Moreover, selling SGBs via a stock exchange attracts Securities Transaction Tax (STT) of 0.1 percent. LTCG will be applicable at 10 percent without indexation and at 20 percent with indexation on SGBs if you sell it after 3 years and before maturity (8 years).
The sale of gold jewellery as a personal asset attracts no capital gains tax. However, you might be charged GST, which differs depending on the state you sell the gold in and is usually about 3 percent of the making charges. Contrary to the Value Added Tax (VAT) system, the GST applies to the making charges only, not the actual gold value.
Read More:-Jan-Dhan scheme biggest instrument of financial inclusion: FM Sitharaman
Taxation of Gold ETFs and Gold Mutual Funds
Gold ETFs and Gold Mutual Funds are treated as equity mutual funds for taxation purposes. Equity capital gains are taxable on profits from their sale with different rates of taxation of short-term and long-term capital gains. In addition, the concept of indexation can also be used to tax long-term capital gains. On such investments LTCG is applicable at flat 20 percent.
Taxation of Gold Gifts
Gold that one gets as a gift from close blood relatives is not taxable. The Gift Tax Act, 1958, sets the tax rates for gifts given by non-relatives. If the value of the items like gold jewellery, coins or other items exceeds Rs 50,000, it will attract tax as per the applicable income tax slab.
