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There are four ways to buy gold in India -- physical gold via jewellery or coins, gold mutual funds or ETFs, digital gold and Sovereign Gold Bonds (SGB).
There are four ways to buy gold in India -- physical gold via jewellery or coins, gold mutual funds or ETFs, digital gold and Sovereign Gold Bonds (SGB).

How much income tax you have to pay when you sell gold

Sovereign gold bonds pay interest at the rate of 2.50% per annum and this interest is entirely taxable as per your tax slab.

There are four ways to buy gold in India -- 1) Physical gold via jewellery or coins 2) Gold mutual funds or ETFs 3) Digital gold 4) Sovereign gold bonds (SGB). When you sell gold, you are taxed and the tax rate depends on the form it is purchased.

1. Tax on gains from physical gold via jewellery and coins

The most common way of buying gold is in the form of jewellery and coins. The taxation for this form of gold depends on how long you held the gold jewellery or coins. If the gold is being sold within three years from the date of purchase, it is considered as short-term. The short-term capital gains will be added to your income and taxed as per your applicable income tax slab. Gold sold after three years is considered as long-term and long-term capital gains will be taxed at 20% after providing for indexation.

2. Tax on gains from gold mutual funds, gold ETFs

Gold ETF invests its corpus in physical gold, aiming to track the price of gold. Gold mutual funds in turn invest in gold ETFs. Gains from gold ETFs and gold mutual funds are taxed just like physical gold.

3. Tax on digital gold

Digital gold is a new way to purchase and accumulate gold. Many banks, mobile wallets, and brokerage companies have tied up with MMTC-PAMP or SafeGold to sell gold through their apps. Gains from digital gold is also taxed just like physical gold or gold mutual funds or gold ETFs.

4. Tax on Sovereign Gold Bonds

These are government bonds denominated in grams of gold. They are substitutes for holding physical gold. These bonds are issued by RBI on behalf of the Government of India and come with a maturity period of eight years, with an exit option from the fifth year.

Sovereign Gold Bonds when redeemed at the end of 5-8 years using the redemption window, any capital gains arising at the time of redemption will be entirely tax-free. However, if you exit earlier via the secondary market, capital gains tax will be applied similar to what is applicable for physical gold or gold mutual funds or gold ETFs.

Gold bonds pay interest at the rate of 2.50% per annum and this interest is entirely taxable as per your tax slab.

(The author is Head of Research at Fundsindia.com)

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